Market Development
• Price closes at €7.79, a week-on-week fall of 9c
• Tight trading range and thin traded volumes as summer holidays curtail liquidity
• Power price decline reduces clean dark spread intraweek
• Weak German auction on Friday pushes contract to week’s low
Auction Overview
• 5.836Mt enters the market this week in 4 auctions, down from 7.541Mt the previous week and 14.806Mt the last week of July.
Price Action
A quiet week in the EUA carbon trading market as the price fell 9c to close the week at €7.79 on the front December contract. With trading volumes thin and a 24c price range through the week, there was little of interest to bring traders to market. The high of €8.01 traded on Tuesday as strong auctions helped fuel some buying. In contrast, the low of €7.77 on Friday came after a weak German auction that cleared several cents below market with a low cover ratio (see auction timetable below). Auction volumes this month are less than half that of July and the summer holiday season is in full swing, reducing the number of people in the market with carbon business to do and thus market activity overall. Power prices fell through the week and reduced the clean dark spread (margin from coal fired power generation) so utilities were not propping the market up either. The negative impact of the falling power price on the clean dark spread was largely reversed on Friday as coal prices dropped by ~€1 to return the clean dark spread to the levels seen at the end of the previous week. Price Impact: lower auction volumes have failed to have a positive impact on carbon prices so far, it is likely there was some ‘pre-hedging’ in July which, combined with power price drops, will have dampened the potential for price rises. That said prices didn’t move very far considering the Clean Dark Spread fall so eyes are on this week’s very low auction volume to see what effect it will have on price. Some strength from last week’s prices is still a possibility.
Market Stability Reserve (MSR)
The MSR has passed all but one legislative hurdle, the last one is expected to be a formality and thus a fully operational MSR, reducing auction supply by 12% per year of the total over-supply, will come into effect in January 2019. You can read more about the MSR HERE. Important MSR dates:
• 18th September – EU Environment Minister endorsement
The week ahead
With auction volumes of just over 5Mt entering the market the supply is thin, however, it is unlikely there are many big buyers out there as the volume reductions were well publicised. In such a thin market each day’s price direction will probably be decided by the strength and cover ratio of each auction. Further strength back to €8.00 and potentially beyond is still the most likely outcome.
