Market developments
- Near one-way traffic for carbon as the week closes down more than 8%
- Week ends at €5.16, a fall of 47c as bearish fundamentals take charge
- This year’s compliance deadline effectively 26th April
- Use our registry shortcuts
- CORSIA – Redshaw Advisors’ summary brings you the latest here
EU Allowance Auction Overview
- Back down to four auctions and ~17.3Mt coming to market, down from ~21.5Mt last week
- Additional 7Mt to be auctioned in March compared to February (~86.3Mt v ~79.3Mt)
EUA Price Action
Bearish fundamentals were able to express themselves last week showing that once-a-year compliance buying is not currently enough to soak up this year’s higher auction volumes. The price came under pressure and ended lower each day with the exception of Friday. The week closed at €5.16, a little above the weeks low at €5.06. After the previous week’s excitement, carbon trading volumes were comparatively low, in particular in the second half of the week, and EUA trading ranges were generally tight. We highlighted the bearish fundamentals in last week’s update with the only likely source of higher prices coming from a rush of once a year compliance buying. However, the timing of this buying interest is highly unpredictable even if it is broadly quantifiable. Technical ‘support’ from the uptrend established over the last three weeks gave way overnight on Tuesday, confirming that fundamentals were in charge of price direction. The fact the market did not fall faster would suggest that the market is already trading short (i.e. speculators don’t have the ammunition to give carbon a strong push down) and that there is reasonable, but ultimately not enough, compliance buying support around at present. As the week progressed the drift down towards €5 had an air of inevitability about it, helped on the way down by news that the UK’s largest gas storage field is not likely to be able to inject gas until July. This didn’t help clean dark spreads even while hydro storage levels in Europe remain far below seasonal norms. Price Impact: the dust appears to have well and truly settled on the political and sentimental drivers of the previous 2 weeks as the market moved back to periods of weakness, low carbon trading activity and low volatility. Substantial weakness is probably not on the cards this week.
Week ahead
Spring has sprung, at least in short-term weather forecasts, and will not help carbon demand this week. One less auction, low prices and the looming compliance deadline will alleviate the selling pressure. If prices fall the buying is likely to intensify as compliance buyers target the psychological €5 level. The likely interest at that level means it will probably provide support for a while so when coupled with one less auction means we favour some sideways price drift this week. That said, if Article 50 is triggered this week to formally beginning the Brexit process, wider markets and consequently carbon can be expected to be a little volatile.
OTHER NEWS
CORSIA prepares for take-off
Aviation carbon emissions are inexorably rising and regulators are under increasing pressure to reduce the impact of those emissions on global warming. Aviation emissions are set to be capped by various regional carbon trading schemes including the EU ETS and international flights will be captured by the International Civil Aviation Authority’s new carbon offsetting scheme, the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA for short. You can read our summary of the latest CORSIA developments here.
