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Turkish 10% tariff on US coal likely to negate sulfur cap increase: utilities

Lisbon — A 10% tariff on US coal would likely negate the possible benefits of a Turkishsulfur cap increase expected implemented after Turkey's snap elections nextweek, utility buyers from the country said Wednesday.

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The tariff is Turkey's countermeasure against the US decision to imposetariffs on steel and aluminum imports from Turkey, among other countries.

"If a 10% increase is applicable, it won't be sustainable," said Sabri Oral,executive vice president of Odak, speaking at the Argus Mediterranean SolidFuels conference in Lisbon.

The tax would be against the interests of the Turkish government as it wouldlimit cheaper coals from the US coming into the power generation mix, Oralsaid.

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 CIF Amsterdam-Rotterdam-Antwerp prices nearing $100/mt and a slidingTurkish lira/dollar exchange rate, utility traders said the current coalenvironment was not sustainable and that allowing high sulfur supplies intothe market would let cheaper US cargoes compete.

"US high sulfur coal prices are better for us," said Omer Buger, contracts andplanning manager at utility Eren Eerji.

Buger said current CIF ARA price should be around $20/mt lower than itscurrent level for plants to operate more cost effectively, highlighting thatbuying coal in dollars and selling energy in lira is proving to be costly,especially with the latest movements in the exchange rate.

"US [coal] prices are advantageous compared to CIF ARA prices," Buger said.One third of Turkish imports would be from the US when the cap was raised dueto the cost effectiveness of that country's coal, he estimated. BLENDING HIGHER AND LOWER SULFUR COALS

Under the proposed sulfur cap increase, utilities would be able to acquirecoals with sulfur levels higher than 3% if blended with low sulfur coals.

Coals would need to average out to about 2% sulfur at the end of the year,sources have said.

Buger said the change should have been implemented a month ago, but had beenpostponed until after Sunday's Turkish election.

"We are waiting for legalization," Buger said, adding that Turkey's economyministry had already approved the change.

Mehmet Topeli, energy reporting and planning manager at utility iSKEN, said:"We have started preparation for importing high sulfur coal."

--Piers De Wilde,

--Edited by Richard Rubin,