Chemical-tanker players are about to take another hit as the once lucrative trade in edible palm and soya oils into Iran dries up because of sanctions being imposed on the country.
Reports from Singapore and Malaysia this week indicate that vegetable-oil traders have stopped supplying Iran with palm oil over fears that sanctions against its banking sector will hinder importers’ ability to pay for the product.
Local press says traders in Singapore, where most deals involving Indonesian palm oil take place, have stopped taking Iranian letters of credit since the beginning of the year. Similar reports are emerging from Malaysia.
The two countries are the largest suppliers of palm oil to Iran, which in 2011 imported 650,000 metric tonnes of the commodity, according to statistics released by the US Department of Agriculture (DoA).
Traders in Asia give a higher volume, claiming Indonesian exports average 50,000 metric tonnes per month to Iran, with Malaysia supplying about 30,000 metric tonnes per month, giving a total of 960,000 metric tonnes per year.
This large volume of palm oil is mostly shipped in handysize chemical tankers, brokers tell TradeWinds.
Fears of non-payment are also taking its toll on Iran’s soya-oil imports as banks and traders in Canada, Argentina and Brazil are also said to be reluctant to accept Iranian letters of credit.
Iran is the world’s sixth-largest importer of soya oil, with the DoA reporting that the country imported 400,000 metric tonnes in 2011, a 43% drop from the 2010 figure of 704,000 metric tonnes.
Iran, with its population of 74 million, is heavily dependent on agricultural imports as its arable land and farming industry is not capable of meeting domestic food needs.
Sanctions are already affecting the country’s ability to import other agricultural products. Last week, it defaulted on payments for 200,000 tonnes of Indian rice, which prompted the All India Rice Exporters’ Association to call on members to stop exports to Iran based on credit.
Indian news sources said Iranian rice importers had defaulted on payments worth about $144m for the shipments, which were loaded at Indian ports in October and November.
Some of the Iranian rice was diverted but most remains on bulkers said to be sitting off the Iranian coast waiting for the payment problems to be sorted out.
Some vegoil traders believe Iran may resort to securing some of its palm and vegoil needs through third-party countries. It has done so in the past, mainly through traders based in the United Arab Emirates (UAE), who transhipped the cargoes at UAE ports.
Tanker brokers caution that while Iran might indeed be able secure supplies through third parties, it will still have trouble getting the oil into Iranian ports as most tanker operators nowadays are specifying no calls in charter contracts.
They also point out that the Iranian tanker fleet is geared toward crude-oil exports and therefore does not have the necessary IMO-II type chemical/products tankers required to carry vegoil cargoes by the International Bulk Chemicals Code.
The predicted growth in global demand for vegetable oils this year will help cushion the Iranian blow somewhat but brokers say the sudden loss of the country’s large volume of imports will still be hard for the chemical-tanker market to digest.