Weekly carbon trading update – 10th July, 2017

Market developments

  • A further 7% is added to the carbon price as the week closes at €5.39.
  • Highest price in 4 months as carbon hits €5.43
  • German power hits 2 year high on rising coal prices
  • Price breaches technical levels and stop-outs exacerbate move higher.
  • French president follows through on coal exit promise

EU Allowance Auction Overview

  • Auction volumes fall slightly to 21.5Mt from 22.1Mt.
  • Increased July auction volume (~91.5Mt) ahead of reduced auctions in August

Carbon Forward 2017 Programme has been released

Register your interest to receive the programme and be kept up to date with the speaker and sponsor updates, including early-bird specials and the special rates that Redshaw Advisors have negotiated for industry with emissions below 1Mt per year – up to 70% off! See ‘Other News’ for more information.

EUA Price Action

Carbon made further gains last week as ever-climbing power and coal prices dragged carbon higher. Front year power prices hit a 2-year high, moving in sync with coal prices. This in-turn caused upward pressure on carbon prices, exacerbated by technical breaches and short-covering as traders either closed or reversed short positions, targeting further short-term gains. The week had begun in relatively subdued fashion with carbon prices unable to significantly advance on €5 and the previous wek’s high. The second half of the week brought substantial price rises as traders rushed for the exit. Price Impact: the ‘obvious’ trade in recent weeks has been to short EUAs due to July’s increased auction volumes, however, the utilities have underpinned the market for the last few weeks owing to strong clean spark and dark spreads. The recent addition to the mix of upward spiralling power prices has deepend this demand and caused traders to re-think the short EUA strategy as a price of €5.50, rather than the expected €4.50, came into view.

Week ahead

Much the same as last week’s view, some further short-term gains for carbon cannot be ruled out, however, for prices to continue rising the underlying demand from utilities and industrials will need to be strong. There may be some additional hedging from utilities with one eye on the reduced August auctions, however, the clean dark spreads have fallen away from their recent highs and summer holidays are likely to restrict industrial demand. Additionally, gas prices continue to look weak and will bring fuel switching levels back into focus across Europe, potentially denting the demand for carbon. Prices above €5.50 will look an attractive sell for speculators.

Window of opportunity? The compliance deadline is out of the way for everyone for another year but the real carbon risk, MSR-induced price change, doesn’t go away so conveniently. The medium-term outlook for carbon prices is bleak but Energy Aspects’ longer term forecasts tell us that they are set to move substantially higher. To discuss your exposure and how we can help you get on top of it before the market reacts to the MSR’s start in January 2019, feel free to get in touch: info@redshawadvisors.com

Other News

France drops calls for EU ETS price floor but follows through on coal exit

An election promise by French President Emmanuel Macron to introduce an EU ETS price floor has been dropped. The recently published French energy strategy made no mention of support for a price floor, instead indicating support for a strong review of the EU ETS. However, Macron has followed through on his promise to close the countrys remaining coal fired power generation with a target date of 2022.

Macron was not the first and is unlikely to be the last to call for a price floor in the EU ETS, however, support for such a measure has been limited with worries about the impact on Europe’s industry and politicians favouring supply side intervention.

FTI Consulting believe EU ETS prices could rise in 2017 due to the MSR

US based consulting firm FTI Consulting believe that EU ETS prices could rise as early as 2017 due to changes to the Market Stability Reserve withdrawal rate. The MSR does not begin functioning until 2019, however, FTI believe speculators will take positions as early as 2017 in anticipation of higher prices. The MSR change is yet to be signed off by Europe’s politicians as part of the Phase IV review but support appears to be widespread.

Our view is that MSR led prices rises as early as 2017 are not inconceivable, however, the impact is likely to be limited. The profit and loss accounting on speculative trades as well as reduced speculative appetite in relation to EUA trading is likely to limit appetite for such trades with speculative traders typically focusing more on shorter-term opportunities.

Carbon Forward is back and Redshaw Advisors announced as official partner

Redshaw Advisors are pleased to announce that we will once again be the official conference partner and training day provider for the annual Carbon Forward conference to be held in London on 26th-28th September 2017. The conference will give carbon market participants from all over the world a greater understanding of the risks and opportunities they face in ever-changing carbon trading, regulation and taxation.

Brexit, the ‘Trump factor’, an ambitious Phase IV reform package, the Chinese ETS launch in 2017 and the development of a global offsetting system for the aviation industry mean carbon risk is higher than ever. To successfully manage this risk companies need a thorough understanding of how carbon markets and regulation across the globe affect them and their competitors, Carbon Forward is designed to provide that understanding.

Interested in attending or finding out more? Fill in your details here and you will receive regular updates on the latest speaker announcements, program developments and special offers. More information can also be found at www.carbon-forward.com.

Alternatively, if there is something you would really like to see in the conference program please drop us an email with your suggestion(s) and we will let you know what we can do to make it happen.