Market developments
- Carbon falls further to end the week at €4.69, down 1.6% (8c)
- Midweek price rise wiped out in Friday afternoon sell off
- First Polish auction of the year clears above market
- Preliminary verified emissions data in line with expectations
- First trilogue meeting on Phase IV reforms takes place 4th April, 2017
- 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
- Auction volume decreases to ~21.5Mt, from ~23Mt last week in 5 auctions
- April brings 78.5Mt to market, down from 92Mt in March
EUA Price Action
Carbon fell a little further last week to end the week at €4.69, a fall of just 8c. Despite the bearish headwinds going into the week EUAs made a valiant effort to increase in value mid-week but a Friday afternoon sell off returned things to ‘normal’. The heavy auction schedule appears, at present, to be more-or-less offset by once a year compliance buying and normal utility hedging. Falls at the end of the previous week were extended on Monday as prices fell to €4.58. Decent support was found at these levels which coincided with some technical support indicators. The return of the Polish auctions, suspended since last Autumn, created the second biggest auction week ever. Nonetheless the auction cleared above market prices at the time, suggesting speculators had sold in anticipation of the auction the previous week and used the bearish momentum created by the sales and bumper volume on offer in the auction itself to buy back those short positions. A fairly clever strategy leaving those unable to secure the volume they wanted to chase the market up. Thursday saw the high of the week trade at €4.98 but a Friday afternoon sell off, in anticipation of another full week of auctions, tells us that supply and demand are roughly balanced week-on-week. Price Impact: the tussle to set direction outside of the €4.50 – €5 range is on-going. Once-a-year compliance buying by short installations is bigger this year, but so are the auctions. The range will give way but if buying is keeping pace with surprise additional auctions from Poland we now know that EUA prices would probably have risen absent last weeks additional auction.
Week ahead
More of the same is the most likely for the week ahead as compliance buying continues to provide support for now. Another 5 auctions keep the market well supplied but the volume is lower than last week and the absence of auctions over the Easter holidays further reduce volume available to buy. Last April prices rose consistently over the month, at least in part in response to compliance buying. However, this year supply is a lot bigger. The preliminary verified emissions data suggests falls of 2.6%, in line with expectations and anyway the impact on the EUA market of this particular data release is typically small. Tuesday sees the first trilogue meeting of three take place on the Phase IV reform but new price direction is unlikely to result from it, although it is worth watching. Knowing that demand is present but supply is good, on balance, and in the absence of reliable data on how much compliance buying has been left until the last minute, we have a neutral outlook.
If you still need to buy to cover compliance exposure, Check out our blog on April prices, summarised below and available in full here.
