A drop in the Turkish lira today to an all-time low against the dollar has put petroleum coke and coal trades on hold, with some banks heard to have halted credit lines.
Turkish buyers are likely to shift focus further away from seaborne coke and strongly compete in a domestic coke tender on offer early next week.
The lira fell to record lows against the US dollar today after the arrest of Istanbul's mayor Ekrem Imamoglu — a main rival of Turkish president Tayyip Erdogan — raised concerns over political instability in the country. The arrest came just days before Turkey's main opposition Republican People's Party (CHP) was scheduled to hold its primary election, at which Imamoglu was expected to be chosen as its presidential candidate.
As a result, the lira fell as low at 40/$1 in early trading — from below 37/$1 on 18 March — before easing to around 38/$1 later in the day. The intra-day recovery came after Turkey's central bank sold as much as $10bn in foreign currency to stabilise the lira.
"Obviously trades are on hold", one Turkish coke trader said, with several banks heard to have halted issuing new credit lines. But market participants do not expect these stoppages to be long-lasting, given the speed with which the lira's initial depreciation had been partially reversed. Turkey's latest economic shock will hopefully be absorbed within this week, another source said.
The disruption may not have much effect on global coke prices, as many buyers were already avoiding coke purchases as seaborne prices been at a multi-year high premium to coal, encouraging cement makers to buy more coal from Russia. It is also not likely to have a major impact on the coal market, since Turkey's coal demand already falls during the peak April-June hydropower season. Turkish power utilities — the largest consumers of coal in the country — last week began planned outages for maintenance and have mostly fulfilled short-term inventory requirements via term contract.
But cement makers are expected to push to win supply in a domestic refiner's upcoming tender for 76,000t of high-sulphur coke.
"I think there will be huge demand", one source said, as domestic coke will be a safer bet for Turkish cement makers given the currency uncertainty and already high cfr prices for US-origin material.
High interest rates in Turkey last year prompted cement end-users seeking smaller volumes of coal to avoid importing fresh tonnes, instead purchasing previously imported material or nationalised coal from domestic stock-and-sale trading firms, to reduce the share of bank financing for their purchases.
These trades could increase if Turkey's economy worsens, said a trader. Purchases of nationalised coal had already returned this month, with a further trade at around $88-$89/t fot today.
Domestic traders have in recent weeks reduced offers on a free-on-truck basis to compete with offers from Russia, prompting several cement plants to fix cargoes on this basis. Buying nationalised coal also has the added benefit of avoiding the payment issues and political scrutiny of dealing directly with Russian exporters.
Inflation to increase
There could be longer-term economic ramifications of political instability within Turkey, with most market participants expecting inflation to begin rising again in line with the sharp lira devaluation.
"The Turkish economy was doing pretty well over the past few months, and now all the efforts and sacrifices people made are gone," one source said.
Turkey's annual inflation rate fell to 39.1pc in February, Turkish Statistical Institute data show, down from 42.1pc in January and dipping below 40pc for the first time in 20 months.
This had been expected to set the stage for Turkey's central bank to lower its key interest rate further, having already lowered it by 2.5 percentage points to 45pc in January and by the same amount in December. This rate had been held flat at 50pc in March-December last year as part of the government's efforts to tame inflation.
But the latest political and economic developments could turn this progress on its head, creating an uncertain outlook for imported coal and coke demand in Turkey, should the country ramp up interest rates again to stymie spiralling inflation.
