Market developments
- Carbon price tumbles, ending the week at €4.77, down 7% (37c)
- Support broken on Friday as 19c wiped off the price
- First 4 days of the week all close within 4c of each other
- Initial estimates suggest 2016 verified emissions likely to be down 2% y/y
- 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
- Another five-auction week as Polish auctions return. Volume increases to ~23Mt, up from ~21.5Mt last week
- Second biggest auction week ever coming up
EUA Price Action
Carbon prices tumbled 37c last week to end the week at €4.77, a fall of 7%. Much of the losses came on Friday afternoon as the selling pressure finally won out. Support below €5 had remained steadfast until then as the first 4 days of the week all closed within 4c of each other. The looming auction schedule (this week is the second biggest ever), will no doubt have contributed to the falls on Friday. Additionally, as we get closer to the verified emissions deadline on 31st March, early estimates suggest 2016 verified emissions will come in 2% lower than 2015. Much of the reductions are likely attributed to the power sector due to coal-gas fuel switching. Energy Aspects warned of this and the implications for the carbon price over the next few years, back in August 2016. Falling gas prices of late have also heaped more bearish pressure on carbon as we exit winter and bring into focus further fuel switching this year. Moves below €5 earlier in the week ran into a wall of large bids, likely attributed to compliance buyers and speculators taking profit on short positions. Except for 3 days in mid-January, the EUA price had bounced off the €5 level for pretty much the entire year so far, so €5.00 became a bit more than just a psychological target. The bids were slowly filled throughout the week and ran out of steam on Friday. Price Impact: it is impossible to tell with any certainty how much compliance buying is left but the closer we get to the April deadline the thinner it will become. The vast majority will be covered by Easter as compliance buyers ensure they do not fall foul of the €100 per tonne penalty for missing the deadline. With 5 auctions every week from now until Easter, the supply will remain high.
Week ahead
The close at the lows on Friday sets a bearish tone going into this week. It is hard to see where carbon might gain some upward traction as aside from compliance buying support, the fundamentals are bearish. The market is well supplied by auctions especially this week as described above, the weather has turned mild, the clean dark spreads are at low levels and gas prices have fallen bringing into focus further fuel switching. Article 50 will also be triggered this week which will bring into question the participation of UK firms in the EU ETS, answers are unlikely in the short term, however markets do not like uncertainty.
