Chinese Plastics Makers Risk Losing Iran Supply on US Crackdown

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(Bloomberg) — Iranian methanol exports to China — which have so far flown under Washington’s radar — may be subject to scrutiny after the US threatened to impose secondary sanctions on buyers of the country’s oil.

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About 40% of China’s methanol imports, around 5.2 million tons, came from Iran last year, Kpler data show. The chemical compound made from natural gas is used as a feedstock to create olefins, which are in turn used to make plastics. Methanol-to-olefin, or MTO, plants are the biggest buyers of cargoes originating in Iran, according to price-reporting and analytics firm ICIS. 

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“Iranian methanol is almost the only efficient way” for MTO units to get enough supply, said Ann Sun, a senior analyst at ICIS. Around 60% of standalone Chinese MTO plants are located on the coast, and it’s those facilities that rely on imported methanol, she said.

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Methanol flows risk being jeopardized after President Donald Trump said last week that any countries or companies buying Iranian oil or petrochemicals face immediate sanctions, without providing further details. The US had already been widening the scope of its sanctions program, targeting Iranian energy beyond crude, as well as two independent Chinese refineries alleged to have imported oil from the Middle Eastern country.

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The MTO process was developed and commercialized in China, with the world’s first such plant built in Baotou in Inner Mongolia in 2010, according to a research paper published by the American Chemical Society. Methanol has become an important alternative to traditional feedstocks used to produce plastics including naphtha.

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However, Iranian methanol sent to China can go via other countries like the United Arab Emirates or Oman, according to ICIS’s Sun.

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If history is any guide, at least some Iranian methanol may still be able to make it to China even if it’s sanctioned by the US. Flows of crude from the Persian Gulf nation to Asia’s largest economy remain largely uninterrupted, although they now face more obstacles, despite years of pressure from Washington. 

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If US sanctions are extended to methanol, Chinese importers “will expand their procurement channels, accelerating further cooperation with methanol producers in Southeast Asia and South America,” said Xue Fei, an analyst at Chinese industry consultant SCI99. 

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