Weekly Market Update N°33: 14-18 August

Last week

The EUA contracts started last week breaking through the €5.47 resistance level to close that first trading day of the week at the highest level in a month. The carbon prices hedged up shortly after the EUA auction supported by strong power prices and broke above the €5.47 level which had limited prices recently. A solid 10.2 million allowances were traded on ICE which was above the 30-day average of 9.8 million.

On the next day carbon prices followed up Monday’s bullish session, holding above technical support at €5.47. Trading started the day at €5.50 on ICE, but broke quickly through resistance at €5.55 and traded above this level for most of the day. After touching an intraday high of €5.64 (the highest level since March 3) prices fell back and closed at €5.53 which was one cent higher than the previous day’s closing price.

On Wednesday, 16/08, EUAs soared by 4.8% and closed at new highs since the beginning of March. The carbon contracts gained support from the Polish auction clearing 6 cents above the secondary market price. An impressive volume of 21.8 million allowances changed hands on ICE and a big part of the trades taking place were block trades suggesting utilities are active. Lower than normal hydropower generation and reduced nuclear availability led to more coal fired power generation which in turn increases the demand for carbon allowances. The carbon contract closed at €5.80, up €0.27 from the previous close.

On Thursday, 17/08, carbon contracts were little changed. Within the first trading hour the market showed large volatility touching both the intraday low at €5.70 and the intraday high at €5.96. For the rest of the day the EUAs prices traded in a 12 cent range and closed the day at €5.81, up €0.01 day on day. Some 12.3 million carbon allowances were traded on ICE.

European carbon continued to trade at high levels on last Friday, closing 1 cent higher at €5.82, in the middle of the day’s narrow trading range between €5.73 and €5.88. The EUA contracts continued to be supported by the highest power prices since December 2014. After moving higher ahead of the German auction, prices retreated after clearing the auction 4 cents below the secondary market at €5.80. The benchmark contract traded lower around the resistance at €5.83 for the reminder of the session with 8.8 million allowances traded on ICE.

Key news

EU and Switzerland close to link its Emissions Trading System (EU ETS). Negotiations between the Commission and Switzerland regarding linking EU ETS with Swiss emissions trading system has opened in 2010. In January 2016 the agreement was composed but the signature was put on hold following the Swiss referendum. On 16 of August European Commission and Swiss government have announced a proposal for signing and after this for ratification of the agreement. Now the Council of the European Union will need to discuss the proposals. Once the agreement takes effect, supposedly in the beginning of the year, participants in the EU ETS will be able to use allowances from the Swiss system for compliance, and vice versa. This is a good start for other systems to connect to Europe’s market in the future.

EUA prices may hit 15 EUR by the early 2020 or sooner if European policymakers agree on proposal to double MSR rate. According to British analysts at Barclays, upcoming trilogue negotiations between three institutions will be significant and due to this, there is a chance to have a big rises in EUA prices. On September 12-13, there is scheduled a meeting between the representatives from the European Parliament, EU Council and European Commission for concluding a deal on post-2020 reforms to the EU ETS. If there will be concluded an final agreement over doubling the MSR rate to 24%, analysts see an meaningful price increase on the market – 15 EUR or more – that  could be achieved by the early 2020 or sooner. Following the doubling MSR, the surplus on the market will decrease from 3.5 billion tones at the end of 2021 to below 1 billion in 2021.

Market Data

EUA DEC-17:

Date                      Open    High       Low       Last

14.08.2017          5.33       5.54       5.32       5.52

15.08.2017          5.50       5.64       5.47       5.52

16.08.2017          5.55       5.83       5.49       5.82

17.08.2017          5.83       5.96       5.70       5.82

18.08.2017          5.79       5.88       5.73       5.83

 

EUA AUCTIONS:

Date                      Country               Price      Volume                 Ratio

14.08.2017          EU                           5.41     2 131  500          3.50

15.08.2017          HOLIDAY                            

16.08.2017          UK                          5.62      2 428 500             4.02

17.08.2017          EU                          5.90      2 131 500               3.47

18.08.2017          DE                          5.80      2 236 500               2.9