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Turkey’s Tariff Hike On U.S. Coal Imports Could Backfire

Turkey's move to hike tariffs on US imports this week threatens the country’s coal supply since a weakened lira will likely make the commodity a very expensive one, even as its price in U.S. dollar terms declines, a report by Wood Mackenzie shows.

According to the Scottish research and consultancy group, high costs of imported coal in Turkish lira terms puts at risk a few million tonnes of metallurgical and thermal coal imports from several countries, particularly the U.S.

“Even if Turkey relaxes rules sufficiently to allow the use of low-cost, high-sulphur coal, the retaliatory tariffs the European country has imposed on US coal will negate their cost advantage,” Wood Mackenzie Research Director, Andy Roberts, writes.

On Wednesday, Ankara hiked its import tax on US thermal coal to 13.7 percent, from an initial 5 percent, thwarting Washington’s plans to boost its coal exports to the country in the near term.

High costs of imported coal in Turkish lira terms puts at risk a few million tonnes of metallurgical and thermal coal imports from several countries, particularly the U.S.

The move was retaliatory, after President Trump announced last week, on Twitter, that the U.S. was doubling tariffs on imported Turkish metals.

Prior to that, Wood Mackenzie had forecast a substantial decline in Turkish coal imports between 2018 and 2020, based on expectations of continued Turkish lira weakness, the country’s battle between inflation and growth, losses in trade, regional instability and strong growth in renewable generation.

“In the short term, demand for coal will be lowered given higher prices,” Roberts writes. “In the longer term, these new tariffs will slow Turkish economic growth and with that, further weaken the demand for coal.” Related: WTI Set For Longest Weekly Losing Streak Since 2015

At risk is some portion of Turkey's seaborne thermal coal import – which totals about 30 million tonnes per annum (Mtpa) — and which comes from Colombia, Russia, South Africa, Mozambique and the US. The new tariffs could threaten the American portion of those imports, estimated in 1 Mtpa.

The immediate impact will be felt by traders as their margins could evaporate, says the expert, adding that those willing to trade in the Turkish market are likely to require guarantees and early payments.

Also at risk is the country’s plan to allow the use of higher sulphur thermal coal. Initially, the government had been expected to increase the permitted sulphur content for imported coal from around 1 percent to 3-4 percent, by opening the doors for high-sulphur US coal suppliers, particularly from Northern Appalachia and the Illinois Basin. The tariffs, however, won’t allow that, Wood Mackenzie forecasts.

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  • Mamdouh G Salameh on August 18 2018 said:
    When a country’s pride and dignity are involved, hardships and costs become of no consequence. Turkey is no exception.

    If it is claimed that Turkey’s tariff on US coal imports could backfire, then by the same token the US tariffs on China could also backfire. The US could pay a heavy price by raising tariffs on Chinese imports or by trying to replace them with imports from other countries. No other country in the world could produce goods particularly high tech goods cheaper than China. Replacing Chinese exports will lead to higher prices and also higher inflation in the United States. This will definitely offset any benefits from the tax cuts, worsen the budget deficit and raise US outstanding debts by 2.35%.

    Moreover, the 1 million tons a year of coal that Turkey imports from the United States could be easily replaced by increasing its imports from Russia on barter trade basis or by using their national currencies thus overcoming the decline in the Turkish lira.

    By hiking the tariff on imported coal from the United States, Turkish President President Eceep Tayyip Erdogan is retaliating against the hike of US tariffs on imports of Turkish steel and aluminium. He is also signalling to the Trump administration that he has no intention of backing down.

    President Erdogan believes he has stronger trump cards to play than President Trump. He is convinced that Turkey is too important for the United States and NATO for the US to try to destroy its economy and its currency.

    A continued dispute between the two countries could weaken NATO, undermine US sanctions against Iran and push Turkey closer to the Russian-Chinese axis. Turkey could also move closer to Russian efforts in ending the war in Syria and a possible rapprochement with Syria. It could also block Cyprus development of its newly discovered gas reserves in the eastern Mediterranean.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • JRW on August 18 2018 said:
    Only roughly 5 percent of Turkey is part of the European continent. Neither geographically, nor especially culturally is Turkey a European country. Please don't spread misinformation.

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