Market developments
- Carbon closes the week 22c higher at €4.91. Gain of 4.7%
- Price hits €5.19 on Friday morning
- Stronger power profits support carbon.
- First trilogue meeting yields nothing of note. Next meeting scheduled for 30th May.
- This year’s compliance deadline effectively 26th April, see our ‘Tips for surviving the EU ETS compliance deadline’ and our registry shortcuts
- The daily carbon market update is back for the compliance season. Email us if you wish to receive it.
EU Allowance Auction Overview
- Auction volume down to 17.6Mt from 21.5Mt due to Easter holidays
- April brings 78.5Mt to market, down from 92Mt in March.
EUA Price Action
EUA prices made a move higher last week as remaining compliance buying and improving power generation returns conspired to lift EUA demand. Prices hit the dizzy heights of €5.19 on Friday morning but an afternoon sell off triggered by power price declines saw prices close the week at €4.91. A nonetheless fairly impressive 4.7% gain. Much of the week was spent yo-yoing within the recent €4.60 – €5 range as neither compliance buying nor utility hedging could overcome the generous auction supply on offer. Little direction was provided by either the verified emissions figure, which came in as expected (despite some volatility thanks to the total emissions reported being incorrectly skewed by one installation supposedly having emissions 1,000 times their real levels), or the first trilogue meeting on the Phase IV reforms (see update below). The EUA price finally broke its shackles on Thursday, moving 27c higher. The move was more of a grind than a rush suggesting compliance buying was playing a meaningful part in support this week but tipped over the edge by stronger power prices creating strong utility demand. There were further gains on Friday morning as the price hit the high of €5.19 but late power price drops meant that this level couldn’t be sustained. The correlation with power prices of late has been reasonably high as nuclear unavailability, low hydro levels, a cold winter and lower than average snow pack across Europe has altered usual hedging patterns. The last 2 sizeable carbon trading moves (first down 2 weeks ago and then up) have been closely aligned with declining and then improving clean dark spreads as power prices recovered from recent lows. Price Impact: short term power hedging is having an impact on a reasonably finely balanced market. Price rises in a 5-auction week should not be the norm but unexpected power hedging combined with compliance demand were enough to tip the balance last week. That gains were not larger tells us that carbon still faces headwinds despite the short-term fundamentals having been stronger.
Week ahead
The next two weeks will be disjointed by the Easter holidays which, if people are getting hedged in good time, may lead to muted carbon trading volumes and price action. Four auctions this week and next ease the supply burden slightly and come at a time when compliance buying is likely to be in its final throws. The warm weather is unsupportive but clean dark spreads are healthy when compared to levels of late and should keep utilities active. All in all, a bit of a mixed bag for the week ahead leads us to a neutral stance for the coming week but with the chance of a surprise to the upside.
If you still need to buy to cover compliance exposure, EUA prices are still below the 2016 average. Check out our blog on April price development, available in full here.
Other News
First trilogue meeting begins to lay the foundations of the final Phase IV reforms
The first trilogue meeting on Phase IV reforms took place on 4th April 2017 and although no tangible progress was made the meeting is said to have gone well. It appears there will be three main topics remaining that will require political differences to be resolved; measures to strengthen the price signal, auctioning share and control of the transition and innovation funds. The remaining outstanding reforms are more technical in nature and will be left to the experts in those fields.
At the current rate of progress, we understand that the trilogue process will not be resolved quickly and is unlikely to be wrapped up before the summer. Therefore, the market will be kept guessing until at least Q3 2017. This is in contrast with the rapid succession of proposals and seeming agreement between December and February. The next trilogue takes place on 30th May and will be preceded by a technical meeting on 17th May. We’ll let you know if anything exciting happens!
