London - US sanctions on Iran have forced South Korea to look for alternative sources of condensates, thereby impacting tonne-mile demand, writes the research firm Drewry in its last report.
Moreover, as Asian petrochemical consumption is likely to slow down, intra-regional trade will weaken and will therefore lead to lower charter rates for small gas carriers. The petchem sector in South Korea is faced with a “double-edged sword”.
On the one hand, the US sanctions on Iran have forced South Korea to look for alternative sources of feedstock, and on the other, declining petchem prices and weaker economic forecasts for South Korea’s major petchem consumers, such as China and Japan, have reduced the demand for South Korean.
China’s imports of South Korean petchem products decreased by 2.3% in 2018 as the former’s exports of finished products to the US slid due to the trade war. China’s PMI fell to 49.7 in December 2018 signaling a slowdown in manufacturing activity in the country.
As a result, South Korea’s petchem exports dropped 1.4% to 2,761,000 tonnes in 2018 from 2,799,000 tonnes in 2017. Furthermore, petchem exports are projected to decline again in 2019, due to forecasts of slower industrial production in Asian petchem importing countries. In early 2018, the outlook for South Korea’s petchem sector was bullish, mainly due to forecasts of higher ethylene demand.
However, when the US imposed sanctions on Iran, the situation changed almost overnight. Up to that point, Iran accounted for 38% of South Korean imports in the first seven months of 2018. Despite the180-day temporary sanction waiver starting November 2018, South Korea stopped importing condensates from Iran in September due to the lack of clarity over insurance and other terms related to exporting vessels.