Undoubtedly, the most important competitive advantage for investment and the development of petrochemicals in Iran has been access to feedstock such as ethane, naphtha, natural gas and condensate. Lower prices of feedstock provided by government in form of subsidized oil and gas supply have enabled companies to realize profit for a long time. With abundant natural resources, Iran is considered as one of the world’s largest low-cost hydrocarbon resource bases. This includes the world’s second-largest holder of oil reserves and the world’s largest holder of gas reserves. This has offered the country’s petrochemical industry a cost advantage compared to other players around the world. But it would appear that the age of “easy feedstock” is ending.
The ideas of “appointing feed price based on the investment rate of return for each product around 25%”, or “linking feedstock to crude prices and reviewing it on yearly basis,” and “to link feedstock prices to the average global prices with annual review” are strong signals which shows that the Iran`s government aimed at weaning the companies off their dependence on cheap raw material.
Developing value chain and conversion of existing petrochemical outputs into more valuable products is one of the attractive methods by which companies would curb the difficulties of low profit margin, given the rise in the feedstock prices and subsidies’ cut-off for petrochemical is inevitable in near future.
It’s obvious that implementing new operating models and replacing with outdated one is the challenge for price sensitive industries through which companies would lower operating costs and could overcome their low profit margins. Examples of this applicable criteria could be the production of Ethylene in Asia and Europe where the industry realizes profit in spite of expensive raw material (including Naphtha), producing downstream with competitive prices, but they are still alive and profitable.
The global economy required companies to create a significant change in their performance and take advantage of their existing capabilities for new downstream businesses, the stage in which the upstream or intermediate products are processed to more valuable products such as synthetic materials, chemicals and solvents by means of feedstock for other related industries.
Finally, the competitive advantage of petrochemicals particularly embedded in the downstream sector is worthwhile enough to encourage the industry to develop their value chain by expanding downstream activities. The era of cheap feed via infeasible subsidy is ending and industries willing to be survived are needed to adapt their systems to the environmental changes.