Iranian petrochemical companies prefer CFR Asia deals over FOB

28-May-14

Iranian petrochemical traders currently sell all their products on a CFR basis in Asia instead of FOB to avoid payment issues, trade sources have been quoted by Platts. "We sell products on a CFR basis in countries like China so as to ensure that the cargo is handed over only when the payment is made," a Tehran-based source close to Petrochemical Kala Company said. PKC trades a range of petrochemicals and refined products in and out of Tehran, while an amount ranging between 25-30% of the total value of shipment is paid by the customer at the time of loading of cargo, the rest is paid when the cargo is delivered at the destination. This is to avoid the risk of default as Iranian companies do not want to enter into litigations. With the uncertainty over sanctions continuing, that's the last thing we want." Iran received limited sanctions relief in November to export petrochemical products and import technology and machinery in a deal struck with six world powers in exchange for a promise to stop enriching uranium over 5%. The six-month relief period began January 20. Subsequently, the EU lifted its ban on the provision of insurance for tankers and ships carrying crude oil and petrochemicals from Iran. "Major European shipping lines now carry Iran-origin products. The ships are either being loaded at Iranian ports or through small feeder ships in ports of Dubai and Singapore," a Dubai-based trader who deals in Iran-origin polymers said. Since the payments for Iranian cargoes are mostly made in cash, major companies like Sinopec stay away from Iranian cargoes. "We need to open a letter of credit in a bank as per Chinese government regulations. We are not allowed even telegraphic transfers. We can't do it for Iranian companies as they continue to remain off the global financial network," a source at Chinese major Sinopec said. Banking restrictions have continued on Iran, even during the current six-month waiver on sanctions. It remains difficult for international banks to open letters of credit for payments in and out of Iran, sources say, with banks from Japan, South Korea and Switzerland handling revenues related to the deal. Iran also remains off global financial networks such as Western Union and it's not possible to remit money into Iran through official channels.