Market Development
• EUA carbon price closes the week at €8.00, down 12c week-on-week
• Strong bid side interest in both auctions and futures market helping sustain prices around €8 level
• Tight 16c trading range throughout the week
• Coal drops below $50 per tonne for 2016 delivery
• China confirms 2017 start date for national ETS
• Union registry to close on Sept. 30th
Join us for our webinar to discuss ‘the rising price forecasts, haven’t we heard it all before?’ We explore the subject with Trevor Sikorski of Energy Aspects, introduced by Louis Redshaw, Managing Director of Redshaw Advisors. Webinar details: 10.30 a.m. (11.30 a.m. CET) Wednesday 30th September, 2015.
The Union Registry is shut for 24 hours from 08:00 CEST on 30th September to 08:00 CEST on 1st October
Auction Overview
• 15.075Mt comes to market this week in five auctions
• 60.170Mt EUA auction supply in October
Price Action
EUA prices recorded further modest losses last week as the front December contract settled at €8.00, down 12c from the previous week. With EUA trading prices in a very tight 16c range throughout the week the price continues to hover around the €8 level. The bid side appeared to be healthy with cover ratios in the auctions strong and sizeable bid volume visible on the ICE futures market. It is noteworthy that volume buyers do not usually ‘show their hand’ by placing sizeable bids on screen for all to see and so at best the increased volume provides mixed messages about the real buying interest out there. There was little to note with respect to the clean dark spreads which finished relatively flat week-on-week as power, coal and emissions all fell. Coal continued to find new lows as the front year contract traded below $50 for the first time with the market dogged by falling demand and oversupply. Price Impact: the carbon market appears to be finely balanced at present. Further drops are possible with technical support levels being tested and broken, however, the material drop some were predicting in September have not yet materialised and continued support from the bid side could help keep prices at current levels. A close materially through €8.00 will validate the bears view that prices will drop some more but so far in September price is little changed (1st September visited €7.95 and closed at €8.02).
China announces 2017 start date for national emissions trading scheme
China has officially announced a 2017 start date for implementation of a national cap and trade scheme. Currently, seven pilot schemes are running in China. Fossil fuels still dominate energy production in China with 64% of the countries power generated coming from coal-fired power stations. Sectors covered by the national scheme will include power generation, iron, steel and cement among others. As the world’s second largest economy, the confirmation of a national scheme in China will increase pressure on other nations, particularly the U.S, to take meaningful steps to reduce emissions. It will also serve to bolster the resolve of regulators of existing emissions trading schemes to stay the course.
In the commodities rout carbon markets buck the trend
With the majority of commodities suffering from the fear of global economic meltdown, led by a China slowdown, there appears to be one commodity bucking the trend – take a bow EU carbon allowances. EUA prices have risen to over €8 from below €5 in the middle of 2014, in contrast to the oil market, where prices have fallen from over $110 to below $50 since the middle of 2014. It is not just oil that is suffering; coal has followed a similar path recently falling below $50 per tonne on front year delivery, a decline of 25% this year alone. Natural gas has also followed a similar path albeit not so steep. To read the rest of our blog, please click here.
The week ahead
With prices having tracked sideways last week it is possible this week provides more directional insight. Further short-term losses appear more likely at present as global economic headwinds appear strong and persistent; however, with carbon so far resilient to wider economic shocks, moves to the upside are also possible. A drift higher, in line with the rest of the year to date, is the most likely medium term outcome. With September bringing the second highest monthly auction supply of the year the market appears to be robust enough to cope with the supply.
