Uncertainties impair Turkish OTC market standardisation
London, 31 August (Argus) — Turkish over-the-counter (OTC) market liquidity continues to grow in the wake of the country's first brokered deal in May, but traders and brokers report continuing demand for non-standardised OTC products. A move towards more standardisation would help the market grow faster, but this is hampered by fundamental uncertainties surrounding gas prices and long-term supply contracts, traders and brokers say.
Brokers working in the Turkish market report active demand for so-called indexed or non-standardised OTC products over the past few months, although no such deals have been brokered. Products may be indexed to gas, consumer tariffs or a mixture of the two.
Brokers said they are responsive to the specific demands of Turkish market participants — offering these services on voice rather than listing them on their broking platforms. But they underlined that they are pushing for the wider standardisation of the market, in line with other European markets — especially as more foreign participants seek to enter the high-growth market.
Tradition brokered the first Turkish physical power deal in May, for 5MW of a front-month contract, and Icap is also actively pushing Turkish power products.
One major trend in the Turkish market over the past year has been to index bilateral contracts to gas prices — especially because of uncertainties over when a gas price hike will next be imposed. A 14pc increase in October last year was followed by a 19pc hike in April this year — but these have not been sufficient to recoup state-owned generator Botas' debts, and it announced a 1.34bn Turkish lira ($743mn) net loss for the 2011 financial year in August. The Turkish power market is especially vulnerable to gas price movements because almost half of all power generation derives from gas.
Current market expectations are that Botas needs to levy another 10-15pc hike, and that it could impose this in October. But the lack of certainty leads to wide bid-offer spreads in the October base-load contract, making it unlikely to trade actively.
Uncertainties further out
Brokers also report buying interest for the nine-month rolling and nine-month base-load contract as an alternative to what is considered a strong year-ahead price, last assessed by Argus at TL161.50/MWh.
Major uncertainties over the direction in the market in 2013 — including the outcome of ending state-run generator Euas' long-term supply contracts with Tetas and Turkey's gas supply security situation — are also clouding the outlook and deterring sellers from selling on a fixed-price basis.
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