Market Development
- Price closes at €7.88, a week-on-week fall of 14c
- High of €8.10 on Wednesday, €7.85 low on Thursday
- Sell off on Thursday as auction cover ratio falls and price drops out of recent uptrend channel
- July sees prices rise by 5.6%
- Front year German power closes down ~2.2%
Auction Overview
- 7.541Mt enters the market this week in 5 auctions
- First week of reduced auctions, August brings only 27Mt to market compared to around 63Mt in July.
Price Action
The front December contract closed at €7.88 last week, a week-on-week fall of 14c. Despite this drop, July still posted a monthly gain of 5.6% as carbon trading moved into price levels not seen since 2012. In a relatively tight 25c range, prices failed to break higher than the previous week. The auctions in the first half of the week had good cover ratios and propelled the price up to the intra-week high of €8.10. Thursday’s auction saw a steep drop off in cover ratio (see auction timetable below) which contributed to the reversal of the earlier gains. With prices failing to hit new highs it is likely there was some profit taking as traders sought to reduce positions ahead of the August holiday shutdown in much of Europe. The move out of the recent uptrend channel will also have prompted some selling. There was good support around €7.90 which helped prices to stabilise for the rest of the week. Elsewhere, front year German power prices fell 2.2%, coal also fell but not as far so clean dark spreads did little to help support carbon prices. Price Impact: the August holiday ‘shutdown’ is now upon us and the market will only get ~27Mt of fresh supply via the government auctions this month. In contrast, July bought ~63Mt. August is typically quiet and traded volumes are usually below average but, based on 8 years of history, there is a good chance of price gains while there is lower supply.
Market Stability Reserve (MSR)
The MSR has passed all but one legislative hurdle, the last one is expected to be a formality and thus a fully operational MSR, reducing auction supply by 12% per year of the total over-supply, will come into effect in January 2019. You can read more about the MSR here. Important MSR Dates:
- 18th September – EU Environment Minister endorsement
USA targets greater emissions reductions under Clean Power Plan
President Obama is due to release details of his Clean Power Plan on Monday in a proposal that will increase the targeted emissions reductions for power plants in the US to 32% below 2005 levels by 2030. The proposal is another nail in the coffin for coal as the US seeks to increase the use of renewable and natural gas fired power generation. Coal fired generation currently accounts for nearly 40% of America’s power needs. The proposal is likely to face opposition from coal miners and utilities alike who argue the targets are unrealistic and will add to the bills of all Americans.
Energy Aspects release monthly market update
Energy Aspects’ Trevor Sikorski published his latest monthly research on Friday. He points to the Greek bailout, quantitative easing by the ECB, the European Commission’s Phase IV proposal and warm weather as reason for recent price moves up. If you don’t currently receive Trevor’s monthly research, (including comprehensive price forecasts to 2030) please get in touch by clicking here.
The Week Ahead
With the year’s largest month of auction volume now behind us but July nonetheless posting a monthly gain of 5.6% it is likely August sees some consolidation and more trading above €8.
