Turkish thermal coal buyers have pushed back on coal restocking because of the weak lira and expectations that global coal prices will decline further.
Summer is traditionally the time when Turkey secures its coal for the colder winter months. So far this year demand has been low, however, despite expectations that overall imports will grow year on year in 2014.
Over the past year, the US dollar appreciated strongly against the Turkish lira, which masked the decline of the dollar-denominated international coal market.
ICIS data show that the rolling front-month CIF ARA contract declined 5.1% in the last year, falling from $77.05/tonne on 9 July 2013 to $73.125/tonne on 9 July 2014. However, the cost of the coal contract in Turkish Lire (TL) actually rose 3.5% over the period from TL151.04 on 9 July 2013 to TL156.23 on 9 July 2014.
In addition, most traders maintain a bearish outlook for global coal prices as - at 6m tonnes - coal stocks at European ports are nearly twice as high as they were around this time last year, while falling natural gas prices are eroding power generation margins. Similarly, in China stocks are high and domestic coal prices are low, limiting demand for coal imports and further depressing the global market sentiment.
With limited upside risks, coal traders across Europe have adopted a “wait-and-see” approach. This has limited activity as those with long positions wait in hope that prices would receive a boost on account of winter restocking after the summer, while those short are waiting for the bearish sentiment to push price levels lower.
“In many ways Turkish traders resemble Indian buyers at the moment – waiting for prices to hit the absolute bottom before getting involved,” one trader said.
A second source confirmed that there is little need for fresh deliveries into Turkey at the moment although overall electricity demand is still rising: “I expect that overall there will be a slight increase in total imported volumes into Turkey this year but at the moment demand is unusually low.”
Last November, market participants polled by ICIS agreed that Turkish coal imports would be 25% higher year on year in 2013 at around 22m-25m tonnes. They also predicted import demand would grow a further 10% in 2014 ( see sister publication CSD 21 November 2013 ). Some of them revised their expectations down in February when Turkish Statistical Institute data showed that Turkish thermal coal imports totalled just 20.9m tonnes in 2013 – down 12% year on year ( see CSD 20 February 2014 ) but most now see exports in 2014 totalling at around 22m tonnes. Manca Vitorino