By Piers De Wilde and Maurice Geller

July 12, 2018 - Newly reelected Turkish president Recep Tayyip Erdogan appointed Fatih Donmez as energy minister this week, leading some market sources to point to his support for raising the sulfur cap on imported thermal coal as a positive sign. The weakness of the Turkish lira continues to send a bearish signal for the market, however, sources said.

"[Donmez] is supportive of the sulfur cap rise," one Turkish utility buyer said. Donmez already has experience within the Energy Ministry, the source said, and seems supportive for the coal industry.

Under the proposed sulfur cap increase, utilities would be able to acquire coals with sulfur levels higher than 3% if blended with low sulfur coals to average no more than 3%.

The source said despite the new minster being encouraging towards raising the sulfur cap on imported coal, the legislation would take time to be implemented as the new government takes form.

Advocates of increasing the sulfur cap to 3% from its current limit of 1.2% have argued it would provide relief to a high-priced coal environment, with the benchmark delivered Europe price currently at multiyear highs.

"If [Erdogan] is more market-focused then it will be business as usual," said a European trade analyst.

Despite installed capacity investments towards natural gas, Turkey remains one of the main coal importers in the Atlantic Basin, with coal predicted to be a large part of the energy mix into Turkey in the coming years. 

In 2017, imported coal and lignite provided 31% of power generation in Turkey, with natural gas at 38%, according to the Turkish Electricity Transmission Company (TEIAS). In 2018, coal and lignite is expected to be around 36%, with gas around 31%, according to (TEIAS).

Turkey typically imports coals from Russia and Colombia, which made up 35% and 60% of all Turkish imports respectively in the first five months of 2018.

Lira Decline

Erdogan's appointment on Monday of his son-in-law Berat Albayrak as head of Turkey's finance ministry sparked concerns on the global stage, resulting in a further decline in the lira, which opened the week at 0.22 lira to $1, reaching a low of 0.20 lira Wednesday. This decline has been somewhat problematic for utilities in Turkey as they procure seaborne coals in dollars and sell energy in Turkish lira. 

"The lira will keep losing power until the end of the year," the Turkish buyer said. To circumvent this, the sulfur cap on imported thermal coal would need to be lifted to allow for imports of cheaper, high sulfur US coal, the source said.

Market sources anticipate up to one-third of the Turkish import market will turn to the US for high sulfur coal when the sulfur cap is lifted, having only imported 128,321 mt of coal from the US so far in 2018, making up just over 1% of all imports to Turkey, according to customs data.

Rising electricity prices in Turkey have provided some relief from the weakening lira which has been eating into utilities' margins.

"[Erdogan] might push more domestic lignite if the currency depreciates too much," said the trade analyst, referring to utilities choosing to procure local lignite to avoid exposure to volatile exchange rates.

S&P Global Platts assessed the CIF Turkey, 6,000 kcal/kg NAR, 90 day price at $101/mt Friday.  

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