Market developments
- Prices climb 39c to end the week at €4.84
- The 8.8% gain comes as Clean Dark Spreads set new year to date highs
- The €4.92 high on Friday is the highest price for a month
EU Allowance Auction Overview
- Auction volume falls by more than 8Mt this week to 13.38Mt, down from ~21.5Mt
- May brings 82.8Mt to market, up from 78.5Mt in April
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EUA Price Action
Carbon hit €4.92 last week as further gains in the clean dark spreads (CDS) helped push prices higher. In last weeks carbon trading update we suggested a move higher was on the cards as tailwinds for carbon strengthened. Climbing power prices allied with a strong EUR/USD rate have taken the CDS to new year-to-date highs. The CDS gains also coincide with a period of reduced auction supply as several national holidays curtail the number of auctions over the next few weeks. Nuclear outages in France and the low hydro levels seen so far this year all add to the bullish mix. The beginning of the week saw prices once again come under pressure but strong auction clearing prices suggest utilities were taking advantage of the improving generation spreads and supporting carbon. The inability to set new lows will also have had speculators exiting short positions as price rises gathered momentum and the technical picture improved. Price Impact: the move higher was perhaps to be expected with the bullish mix at present but what will be key over the next week or two is the size of the gains. €5 will be the next target but if prices fail to advance significantly further with so many tailwinds it would suggest testing times ahead when those winds change…….
Week ahead
Only three auctions in the coming week would suggest that, all things being equal, further gains are in store. The move higher last week was more of a grind than a surge so significant moves over €5 may prove difficult. Additionally, holidays across much of Europe on Thursday and Friday are likely to result in muted carbon trading at the end of the week. That said, the lack of participants could give rise to volatility as traders seek to use the quiet markets to their advantage.
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
SPD party supports an EU ETS floor price
The German SPD party have called for an EU ETS floor price as part of its manifesto, echoing calls from the new French president Emmanuel Macron for a minimum price. Traditionally, member states have avoided direct price intervention in the market, preferring to adjust supply. However, a call for a floor price from the largest industrial nation in the EU ETS would likely bring the debate to the table once more.
Currently, the SPD are in coalition with Angela Merkel’s CDU/CSU union and polling second behind Merkel’s party.
Phase IV reform trilogue process slows as participants fail to agree third date
Progress on the Phase IV reform file appears to have slowed as the parties involved in the trilogue have failed to agree a date for a third meeting. The second meeting takes place on 30th May but with no third date scheduled and summer holidays likely to hamper progress it is looking increasingly likely there will be no agreement before the end of Q3 2017.
With many areas of agreement from the EU Parliament and Member State proposals it is possible talks, when they occur, can be productive but with so many vested interests it is a fine balance.
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.
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