Market developments:
- No change in the carbon price week-on-week however a new 3-year low was set intra-week
- Carbon needs some upwards impetus otherwise further falls likely in September
- Clean dark spreads climb as coal falters and the EUR rallies against the USD
- Carbon Forward 2016 conference: Redshaw Advisors’ 15% discount expires Friday, use the code REDSHAW15 here
Auction Overview
- Four auctions add 14.487Mt to the market this week, down from 17.977Mt last week.
- September’s auction volume goes back up to 69.1Mt
- See auction table below for more details.
EUA Price Action
There was just a 1c week-on-week drop for the carbon price last week despite having set a new 3-year low intra-week. Prices tumbled to €3.87 on Monday following a weak auction, extending the previous week’s low by a couple of cents. From there on trade was centered around €4.00 with the low of each day climbing, however, there was also a lack of substantial upside as selling pressure limited price rises to €4.17. The weak auction clear on Monday, some 6-7 cents below the market at the time, triggered further selling and extended the losses evidenced the previous Friday. Carbon managed to claw its way back on Tuesday with the rest of the week fairly muted as the daily trading range narrowed and traders adopted a dip-buying wait-and-see approach. Carbon fundamentals improved last week, the clean dark spreads rose as the coal rally faltered and the EUR strengthened against the USD, further reducing the price faced by European importers. That said, the CDS are still near record lows and continued weakness in the September gas price ensures fuel switching continues. Price Impact: the main price action of the week appears to be speculator lead with the sell off on Monday followed by profit taking on Tuesday. It is hard to gauge current utility involvement but the mixed auction results in the week would suggest they are taking a backseat during this awkward ‘shoulder’ month between summer and winter seasons.
The week ahead
Much the same as last week, it remains hard to see where substantial upside for carbon can come from at present. The unseasonably hot weather forecast in the first half of this week might provide support however it is likely to be short lived given that we are at the back end of summer. Much of the short positioning that pushed carbon lower over the last few weeks seems to be being unwound at or below €4.00, thus providing some support for now. If so, the signs are ominous as once the shorts are covered the lack of underlying utility demand will likely cause further falls. However, we suspect that higher natural demand during winter will stop an all-out rout and to provide some support for carbon into year end.
