Turkey's environment ministry has eased the coal import regulations for the country's power sector by increasing the sulphur content and reducing the minimum calorific value (CV) of coal that can be imported by utilities.
The changes, which come into force immediately, are unlikely to change Turkey's demand fundamentals in the short term, as utilities are not expected to amend their procurement strategies immediately. But the country's import mix could change significantly in the coming years, as buyers will have the option to source coal from origins that price more competitively into the country.
Turkish utilities can now import coal with a sulphur content of up to 3pc on a dry basis compared with 1.2pc before. The legislation suggests utilities will need to apply to the ministry to import coal with more than 1.2pc content and satisfy required emission standards. The limit remains at 1.2pc for power plants without the high-sulphur import permit, according to the environment ministry.
Utilities initially expected legislation to be amended to allow high-sulphur coal imports in 2018, as they lobbied the government to allow coal imports from the US to reduce their fuel costs. But contrary to expectations, the Turkish government imposed a 5pc levy on coal imports from the US in June 2018 amid trade tensions between the two countries. The levy was raised to 13.7pc in August 2018 before being reduced again to 5pc in May 2019. This 5pc levy remains in place.
One beneficiary of the rule change could be US coal, which would have previously fallen foul of the sulphur requirements. Turkish utilities are now allowed to clear different grades of US coal through customs, including northern Appalachian, central Appalachian and Illinois basin. But the change comes at a time when market fundamentals are unlikely to allow for any deviance in Turkish trade flows.
Some Turkish utilities were looking to cancel or resell their term cargoes amid high inventory levels as they have opted to idle their plants because of negative margins for coal-fired generation in the country. The recent jump in power prices in the domestic market, alongside weakness in Europe's coal market, offers some support to the country's winter coal demand outlook, but emerging spot demand from Turkish utilities in the coming months might also push prices in the Atlantic basin higher.
Colombian, Russian volumes may decline
The ministry also changed the minimum CV requirement for power-sector coal imports to NAR 5,400 kcal/kg, from NAR 6,000 kcal/kg on a dry basis, which clears the way for utilities to import off-specification South African coal and high-grade Indonesian coal, which are typically about NAR 5,000 kcal/kg or higher on an as-received basis.
A wider optionality for the Turkish power sector is a downside risk for the country's two major coal suppliers, Colombia and Russia.
The Turkish power sector has the capacity to consume 20mn-25mn t/yr of thermal coal, which will increase by about 2.5mn t/yr once the 1.3GW Emba Hunutlu plant starts operations later this year.
Colombian producers typically supply the majority of the sector's coal needs, but Russian producers have increased their market share in recent years after Colombian producers faced some disruptions.
But reduced Russian volumes are expected to flow into Turkey next year, as Russian producers were heard to be planning to commit fewer volumes to Turkish utilities amid concerns about rail capacity availability. Russian suppliers are also prioritising sales to the Asia-Pacific region from the Black Sea port of Taman.
It remains to be seen how the utilities that have not settled their term needs for 2022 decide to react to the rule change. High-grade Colombian and Russian supply is likely to remain their first choice as these supplies can be used without blending and do not require any adjustments for their boilers. But a wide discount from other origins may still prompt utilities to turn to alternative sources.
Colombian and Russian imports made up about 73pc and 19pc of Turkish power-sector imports in 2020, respectively, according to Argus calculations.
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