Market Development
- EUA carbon price closes the week at €8.12, down 15c week-on-week
- MSR passes final legislative hurdle to become law
- Tight 18c trading range
- Power and coal both fall
- Clean dark spreads fall but remain in region of recent highs
- Falls in most other commodities as China worries continue to weigh on prices
- 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. Please register your interest here.
The Union Registry is shut for 24 hours from 08:00 CEST on 30th September to 08:00 CEST on 1st October
Auction Overview
- 806Mt comes to market this week in five auctions
Price Action
EUA prices fell 15c to €8.12 last week on the front December contract amid subdued carbon trading. The 1.8% fall occurred mostly on Friday. The trading range was tight throughout the week with just an 18c price range. The MSR passing the final legislative hurdle had no price impact on the market as the approval was deemed a formality. The US Federal Reserve decision to leave interest rates at current levels dominated headlines last week. China and wider economic woes were cited for the decision to leave rates unchanged; a rise had been a distinct possibility. The decision shifted wider energy markets lower as fears of a global slowdown, triggered by China, continued to bubble under the surface. The clean dark spread levels, underpinning carbon prices, remained near recent highs despite falling week-on-week by around 5%. The clean dark spreads look to be key to the relative strength of carbon as power and coal continue to struggle amid wider turmoil. The Euro has also been strong against the USD in the last 2 months. This has helped keep EUR denominated coal cheap however the US interest rate decision ultimately lead to a slightly weaker Euro, the opposite of expectation, so keeping one eye on FX developments to see if weakness continues is sensible.
Price Impact: with another ~29Mt of auction supply over the next two weeks, the carbon market will continue to be well supplied. With the clean dark spreads and the Euro sliding a close eye will need to be kept on these levels to ensure the demand side is able to cope with the volume. A break through €8.00 may lead to further, limited, losses.
Market Stability Reserve (MSR) update
The MSR has passed the final legislative hurdle and become law. It will now be published in the EU’s Official Journal once translated into all the languages. As expected the final hurdle was a formality and a fully operational MSR, reducing auction supply by 12% per year of the total over-supply, will come into effect in January 2019. Poland, Bulgaria, Romania, Croatia and Hungary were the main opponents to the MSR functioning from 2019, the reason for their opposition was higher prices as follows;
“Poland, Bulgaria, Romania, Croatia and Hungary are fully convinced that the mechanism managing the surplus of allowances will have a significant impact on the EU ETS Market. Controlling the supply of allowances from the auction volume will have considerable economic, social and financial consequences for the Member States as well as for the industry exposed to a risk of carbon leakage.” Source: Council of the European Union
You can read more about the MSR here. To find out how the MSR will impact all installations carbon risk exposure and how you can manage this risk, please contact us.
The week ahead
The carbon market may be choppy as the wider economic woes continue to weigh on sentiment. With no clear direction, carbon falls back to being short due to backloading and short term demand being affected by clean dark spreads. A break below €8.00 will likely lead to further losses as any weak longs are flushed out.
