Weekly Market Update N°40: 9-13 October

Last week

The EUA contracts opened last week on ICE at €7.05, and quickly started to slide down, trailing lower German power prices. The carbon contract reached an intra-day low of €6.86. The strong EU auction (3 eurocents above secondary market) pushed the prices up to reach €7.05 around noon. Trading then stabilised just below the €7.00 level. Toward the end of the trading day the prices moved down again, to close at €6.95 (down 5 eurocents from Friday’s close). A modest volume of 9.1 million EUAs were traded as on the ICE exchange.

On the next day, Tuesday 10/10, carbon prices skyrocketed to levels last seen before the crash in January 2016. The EUA contracts opened the day at €6.93, and were trading around that level when the EUA spot auction (EU) cleared 2 eurocents lower. The carbon allowances prices broke through the €7.00 level at noon, before a series of consecutive jumps took it through  several observed resistance levels (€7.07, €7.20 and €7.38) to settle at €7.39 (up 44 eurocents from Monday’s close).

The sudden price movement should be attributed to short-covering before Thursday’s Trilogue meeting, in which senior policy makers from the European Commission, the Council and Parliament will try to synchronize their positions and conclude the process of agreeing rules for the EU ETS in its next trading period, from 2021 to 2030.

On Wednesday, EUAs opened the session on ICE at €7.43, and spent the whole day in a relatively narrow range between €7.31 and €7.54. The carbon contracts moved down to their intra-day low towards the end of the session, before settling at €7.40 (up 1 eurocent day-on-day). A healthy volume of 17 million EUAs were traded on the ICE exchange.

The EUA contracts ended the week slightly lower from the previous close after the fifth Trilogue meeting concluded without an agreement late Thursday. On Friday prices dropped to the intraday low at €7.08 immediately after opening but hedged up from there throughout the trading session and reached €7.43 before coming back down. The carbon contracts closed the week at €7.32 (down €0.09 day-on-day). 16 million allowances changed hands on ICE, lower than the 17.8 million traded on average over the last 30 days.

 

Key news

Without a final deal on ETS reform during the closed-door trilogue meeting. A meeting between EU Parliament, EU Comission and EU Council on 12 of October was supposed to finalize a deal on post-2020 reforms. Due to the lack of compromises the final deal was not reached. The talks collapsed over a disagreement on such issues as: free allocation for coal installations (coal power plants for free allocation according to Art.10c), Modernization fund, allocation to non-carbon leakage list, benchmark improvements rates. The negotiators were closed to an agreement, but one more trilogue is needed. Still there is no date for the next meeting, but France and Germany are calling to be ready with a final deal before 6-17 Nov. UN climate negotiations in Bonn. This means that the next discussions should be held in the beginning of November.   

New Dutch coalition is setting new target to cut CO2 emissions by 49% over 1990 levels by 2030. The Netherlands will adopt a Climate law and a minimum CO2 price after 7 months of negotiations, which presents all the measures that parties have agreed for the coming governing period and the climate and energy issues are very ambitious. Dutch government promises that will try to take lead position in CO2 emissions cut. In order to achieve this ambitious goal, they intend to invest in carbon capture and storage for the industrial sector. Also, they intend to close all coal power stations no later than in 2030.

 

Market Data

EUA DEC-17:

Date                     Open    High       Low       Last

09.10.2017          7.05       7.07       6.83       6.95

10.10.2017          6.93       7.43       6.89       7.40

11.10.2017          7.43       7.54       7.31       7.40

12.10.2017          7.35       7.59       7.20       7.43

13.10.2017          7.25       7.42       7.08       7.31

 

EUA AUCTIONS:

Date                           Country         Price              Volume               Ratio

09.10.2017               EU                  6.92                4 261 500                  2.94   

10.10.2017               EU                  6.92               4 261 500                    2.76         

11.10.2017               PL                   7.40                4 857 000                  2.41    

12.10.2017               EU                  7.37                4 261 500                  2.90    

13.10.2017               DE                  7.30                4 473 000                  2.01