Market Development
• Prices rise ~9% (58c) to finish the week at €7.09 on the front December contract
• Strengthening clean dark spreads spur buying interest as EUR denominated coal falls 5%.
• Italy, Poland and Spain yet to hand out their free EU ETS allocations to industrials.
• German coal plants to face possible future fines over their pollution, levied in
Auction Overview
• 6 auctions this week as two Polish EU ETS auctions on Wednesday. (14.806mt EUA, 0.434mt EUAA)
Price Action
The downtrend came to an end last week as carbon prices recovered some of the recent losses to finish 8.91% (58c) up. The main price move occurred on Friday as the price rallied 37c to close the week at €7.09 on the front December contract. Strengthening clean dark spreads are unexpected the cause with power prices rising and coal suffering large falls to 7 year lows, exacerbated by the resurgence of the EUR against the USD meaning EUR denominated coal fell 5% week-on-week. This led to some additional utility demand as they looked to lock in better spreads. Action earlier on in the week was more subdued as investors worried over further price falls. The selling pressure seen over the last few weeks appeared to ease and prices started to stabilize, buoyed by some strong auction results. It is possible there has been some industrial selling over the last few weeks as free allocations hit compliance entities’ accounts. Larger industrials will look to raise cash by selling surplus allowances. The latest report from the EU ETS commission said that some member states, including Italy, Poland and Spain had yet to hand out any free allocations. It is plausible there may be more selling pressure as allocations continue. Price Impact: with another MSR meeting on Wednesday and as yet, little sign of progress, the market will be keeping a close eye on the outcome. Expect volatility due to MSR and dark spread influences. Further improvements in the clean dark spreads and positive MSR news have the potential to push prices on further.
Market Stability Reserve (MSR)
No MSR news to report this week as negotiations and discussion continue behind closed doors and through private channels. The permanent representatives meeting on Wednesday may advance the process further.
Important MSR Dates
• 25th March – Permanent representatives meeting
• 30th March – possible start of trilogue
Germany raises proposal to fine coal power production in EUAs
Germany has proposed a plan to fine coal fired power production in EUAs. The plan is likely to come into fierce opposition within government and the utilities. The plan could increase demand for EUAs as utilities are forced to cover their fines with EUA submissions. To read the full article, including comment from Louis Redshaw, please click HERE
