Market developments
- The week ends 2c down at €5.14
- A week of muted emissions trading activity and a tight trading range
- Polish auction resumption adds to upcoming bearish headwinds
- First trilogue meeting on Phase IV reform will take place on 4th April
- Preliminary verified emissions data due out 3rd April
- 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
- Five auctions bring ~21.5Mt to market, up from ~17.3Mt last week
- Polish auctions add 85.8Mt to the 2017 auction total
EUA Price Action
As expected, carbon traded sideways last week as auction supply was soaked up by compliance buying ahead of the April deadline. In a week of very muted emissions trading activity the trading range was just 19c. The first 4 days of the week saw carbon test the low at €5.09 but the market ran into support each day. The only day the market advanced was Wednesday, the only day with no auction but prices soon corrected Thursday morning as the market digested news of the resumption in Poland’s EUA auctions, despite positive news coming from the Dutch election. Poland announced plans to resume their national auctions on 29th March and will auction more than 85Mt over the course of 2017 and includes volumes from 2016’s cancelled auctions. The run up to the Easter holidays will now see >88Mt coming to market (~10.5Mt more than the market was expecting) in 20 consecutive days of auctions. The additional Polish auctions mean that there will be no more 4-auction weeks for the foreseeable future. The additional volume comes just as we are exiting winter and doesn’t bode well for carbon prices. However, last week, beyond correcting Wednesday’s small rise, the market ignored this new bearish factor with support holding firm at or around €5.10. Carbon’s malaise correlated with the related markets (power, gas and coal) that also finished the week relatively flat and so provided little direction for carbon. Price Impact: carbon has held firm over the last few weeks, underpinned by year-end compliance demand. However, the sideways emissions trading cannot continue indefinitely. There is likely some pent up compliance buying in store but the auction schedule in the coming weeks is relentless….
Week ahead
Five auctions this week will increase the sell-side pressure so all things being equal, there’ll be a test of the bids that have been stacked up on the exchanges at just above €5.00. There is a short blast of colder weather this week that may provide a little support. Poland’s auction timetable announcement means there will be 20 consecutive working days of auctions between now and Easter so upside is even more likely to be capped than before. Recent gas prices falls will also bring into focus the fuel switch levels (coal to gas), possibly further reducing demand. Compliance buying support will be found, temporarily, at or below €5, however the depth of that support is hard to determine with any accuracy. Also thrown into the mix over the next few weeks will be the first trilogue meeting on the Phase IV reforms (4th April) and the preliminary emissions data for 2016 (3rd April). On balance we are bearish for the upcoming week as the market is expected to struggle with the relentless auction supply.
