The situation between Russia and Ukraine could leave Turkish coal buyers scrambling for cargoes despite an otherwise oversupplied international coal market.
Last month, data by the Turkish Statistical Institute showed a surprise 12% year-on-year fall in Turkish coal imports. However, out of the total 20.9m tonnes of coal imported in 2013, the largest chunk of supply – 8.6m tonnes – still came from Russia.
Weak Turkish Lira has recently pushed Turkish thermal coal buyers towards cheaper coal markets, such as Ukraine, but reliance on cargoes flowing across the Black Sea could leave Turkish buyers short if the US or EU impose economic sanctions against Russia or if military tensions between Russia and Ukraine escalate.
“Restricting business with Russia would cause a nuclear reaction,” one London-based coal trader said.
Alternative supply routes
According to a second source, a Swiss-based physical coal trader, the majority of Ukrainian coal ports are located in the east, in the Donets basin, which would be among the areas most affected if relations between Russia and Ukraine worsen. “At the moment operations in the Black Sea are still smooth. But if things escalate those shipments would definitely be affected,” he said.
In addition, if the US imposes economic sanctions against Russia those Turkish companies with assets in US might also have to avoid doing business with Russia, a third source claimed.
Traditionally, Turkey would buy coal from Poland if Russian coal was unavailable. However, one source within the cement industry said that Poland also imports around 20m tonnes of coal per year from Russia. “In an event of an EU ban, Poland would stop exporting their own domestic production as they would need the coal at home,” he said. This leaves Turkish power utilities reliant on cargoes from South Africa, US and Colombia. “If you haven’t got Russian coal to blend with you would have to go with US,” the same source pointed out.
However, at FOB prices of around $76-77/tonne, US coal is currently too expensive for Turkish buyers. Further south, Colombian supply is set to improve once US-headquartered Drummond resumes with shipments from it Colombian port at the end of the month. But the quality of coal produced by Drummond does not match Turkish buyers’ requirements because its volatile matter falls outside the government’s legally imposed 40% limit ( see TEHD and CSD 16 January 2014 ). But Turkish buyers secure most of their supply in fixed-term agreements for coal from Colombia’s largest producer Cerrejon, which has a volatile matter of 32.5-33%.
This leaves South Africa, where supply is currently abundant – though this may change if European countries lose their own supply from Russia. However, in addition to potential competition from European buyers, the size of ships flowing from South Africa’s Richards Bay Coal Terminal would also represent a problem because the majority of Turkish ports are unable to receive Panamax vessels, which usually carry around 75,000 tonnes of coal. “South Africa would represent the next best option [if Russian and Polish coal are unavailable], however, Turkish buyers would struggle to secure the right sized shipments because not many ports in Turkey can take Panamax vessels,” one of the sources said. “What do you do if you run at a risk of losing a lot of your coal supply? You build up your stocks,” the trader added. Manca Vitorino