Market Development
• EUA carbon price closes the week at €8.15, up 15c week-on-week
• Price rises midweek despite falling clean dark spread levels
• Possible ‘edge of hedge window’ utility buying
• Strong auction demand coupled with strong buying interest on exchanges
• RAL price webinar conclusions, recording, Q&A and poll results available
Auction Overview
• 12.734Mt comes to market this week in five auctions (11.952Mt EUA & 0.782Mt EUAA)
• 60.170Mt EUA auction supply in October
Price Action
The front December EUA contract price rose by 15c last week to settle at €8.15, Wednesday was the key reversal day ending 1.5 weeks of small losses. With a weekly EUA trading range of 38c, more than double the range of the two previous weeks, there appears ultimately to be a resumption of the long term upward trend. Sizeable bids on exchange, as highlighted last week, continued to support the market and coupled with several strong auctions propelled the market upwards. Wednesday’s UK auction cleared 4c above the market price at the time that unnerved the shorts and provided upward impetus. The auctions typically clear at, or just below, the market so the 4c premium represented some very competitive bidding. The upward direction was in contrast to the underlying fundamental indicators as the clean dark spread levels worsened midweek. With the CDS levels usually the barometer for utility involvement in the market it is more usual for the price rises to be attributed to increased long side speculative interest. However, given Energy Aspects’ report of utility hedging falling behind trend it is reasonable to assume that some have reached the edge of their hedging ‘window’ (the discretionary amount utilities trading desks’ have to hold off hedging with the expectation that prices recover) which would cause increased demand for carbon. Price Impact: with support below €8.00 having been thoroughly tested and moves down rejected, the upward price trend seen since March looks set to continue into year-end. Lower auction supply this week will also help support prices.
Webinar: are carbon price rises inevitable?
Why it’s different this time – Conclusions
Redshaw Advisors held a webinar on carbon price forecasting on Wednesday. Trevor Sikorski of Energy Aspects gave the main presentation and the resulting polls and Q&A provided some interesting insight into how end-users view the market. Most attendees believe that the legislative changes put in place by Europe will lead to higher carbon prices despite the evidence that industrial production isn’t growing and the risk (to carbon prices) of higher coal and lower gas over the next few years. The polls identified that a significant proportion of companies require better access to reliable information and in some cases required more senior management engagement. However the overwhelming road block to pro-actively managing carbon risks is an unpredictable regulatory environment. The EC have the opportunity to remedy this during the Phase IV review. If you were not able to attend the webinar but would like to listen to a recording and access the poll results, please contact us here.
Volkswagen’s darkest days could benefit the environment
The road transport lobby is all-powerful in Europe and they are one of the main reasons that the sector is not currently accountable for its greenhouse gas emissions under Europe’s cap and trade system. We think they’ve got this wrong, especially when Michael Horn, President and CEO of Volkswagen Group of America is quoted in the press saying in relation to vehicle emissions, “Our company was dishonest…we have totally screwed up.” To read more please click here.
The week ahead
With the downward pressure seemingly overcome, the market once again appears to be looking upwards. With the auction volume in September the second highest in the calendar and the market able to absorb the volume it is possible further rises are in store. That said, the surrounding waters remain choppy with economic frailties and further pressure on other commodities still very much a possibility.
