Weekly carbon trading market update 
Market developments
- Carbon gains 25c (5%) week-on-week
- Price drifts back after early gains
- Week closes at €5.16 following several days of quiet rangebound trading
- Commission announce intention to extend Stop the clock for aviation
- Phase IV reform file final form still in play but doubled MSR withdrawal rate appears to have support
EU Allowance Auction Overview
- Five auctions bring ~22.4Mt to market, up from ~17.3Mt last week
- February brings nearly 9Mt more to market than January (~79.3Mt v ~70.6Mt)
- See auction table below for more details
EUA Price Action
EUA prices gained 25c last week as supportive energy prices and one less auction led the market higher. Early gains were slowly chipped away over the course of the week as prices drifted off from Wednesday. Individual days saw long periods of muted price action and low volumes as the market drifted. The carbon market is finely balanced at present with cold weather and compliance buying offsetting increased auction volumes, the added uncertainty of the upcoming parliament vote on the Phase IV reform file also causes traders to be cautious. The early gains were fuelled by rising energy prices and colder weather forecasts but carbon failed to follow through Wednesday’s €5.47 high despite several bullish technical indicators. The weather forecast turned cold, industrial buyers are starting to line up as their verification data comes in and we had a low auction week. For the market to not go higher is another sign that supply and demand are reasonably well balanced. The outcome of the will-they-won’t-they Phase IV amendment deliberations will only mean speculators are either bearish or very bearish so they are all trading short already. So, all things considered, that last week didn’t go a lot higher is possibly quite significant. Price Impact: it looks like the carbon market can’t go up, so once the cold weather is over with we’ll go the other direction. Only the speed of the decline depends on the upcoming vote. The interim however will be a bit boring with traders likely to adopt a wait and see approach to their emissions trading.
Week ahead
With a full auction week, short-term weather forecasts changing back to cold and the upcoming parliament vote on the Phase IV reform, we have one bearish, one bullish and one sit-on-the-fence influence to keep us guessing on this week’s price direction. Weather seems to be the main influence on demand at present with the biggest buyers in the market, the utilties, actively covering above-forecast short term requirements. Support provided by industrial compliance buying will also have to be seen off before EUA prices can tumble. However, compliance buyers interest tends to be spread out over the next few months because they have more time on their side as the compliance deadline comes only at the end of April after the worst of the cold weather will be over. All things considered, we have a neutral to bearish outlook this week.
