Weekly Market Update N°41: 16 - 20 October

Last week

The EUAs ended the first day of last week slightly up after trading in positive territory for most of the day (despite increasing coal prices leading to decline of the margins in the power generation sector). The EUA government auction cleared two cents below the market price and the carbon contracts went down after this. Prices recovered quickly after and broke above the €7.38 level and touched the intraday high at €7.45 before softening to close the day at €7.32 (up €0.04/t from the previous close).

On Tuesday, 17/10, the EUA allowances posted gains supported by strong auction result. The carbon prices broke above the €7.38 level just after the start of trading on the ICE exchange and traded in positive territory for the remainder of the day. After the EUA government auction cleared two cents above the secondary market price and with a high subscription ratio of 3.04, the carbon price rose 12 eurocents within the next minutes to the intraday high of €7.54. The EUAs closed the day at €7.42, up €0.06 for the day.

On the next day the EUAs posted a 5 percent daily gain, supported by a strong energy complex and strong UK EUA auction (cleared one cent above the secondary market price). The carbon contracts hedged higher through the entire trading session and were further supported by the break of €7.72 level (the highest price reached last month). The carbon price closed two cents lower than the intraday high at €7.81 (up €0.39/t day-on-day). A massive 19 million allowances were traded during the day on ICE.

On Thursday, prices rose sharply during the first hour of trading, reaching an intraday high of €8.05 (highest level since 6 January 2016). The spike seems to have been prompted by news that EU lawmakers agreed Wednesday evening on a special measure to prevent the carbon market balance from being shaken in the case of the UK leaving the EU ETS. This measure was probably seen as bullish by many traders. However, carbon allowances could not sustain declines in coal- and German power and fell gradually for the remainder of the session. The EUA Dec-17 contract fell 16 cents day-on-day and closed at €7.65.

On the next day, Friday 20/10, European carbon continued to slide from its high at €8.05, principally following bearish movements in the German power and API2 coal contracts. After a quick test of €7.80 in the opening hour, prices fell to its lowest for the day at €7.45 (shortly after the German auction cleared in line with the secondary market). Prices then breached €7.60 twice before settling just below at €7.57 (8 cents lower from the previous session).

Key news

Next trilogue meeting scheduled for November 8. After the EU negotiators failed to reach a deal during the 13-hour closed-door meeting held on October 12, they will now make another attempt to strike a deal on a post-2020 EU ETS reform proposal. The EU lawmakers are under pressure as they really want to finalize the reforms before the summit on climate change, which will take place in Bonn, in the period 6-17 November.

At the same time, the Polish Prime minister Beata Szydlo said she would address the EU leaders on the December summit, in case the deal on the reforms does not include adequate compensation for the phase-out of coal in the country. The announcement followed the refusal of the Parliament to withdraw its demand to impose Emissions Performance Standard (EPS) on Modernisation Fund cash going to coal-intensive member states to help them upgrade their electricity systems.

EU lawmakers give instructions to the European Commission for changes in the ETS regulations, which will protect the scheme from uncoordinated Brexit. The proposal states that all allowances, issued from a country, exiting ETS, have to be marked, starting from January 1, 2018. Thus, the EUAs will not be usable for compliance purposes in EU ETS. The deal has to be finalized with a signature at the upcoming Coreper meeting and followed by a full vote at the Parliament and the Council. In case the institutions don`t raise any objections, the act can enter into force 2 months after its adoption. Meanwhile, UK sets three more auctions in 2017 after the country renewed its contract with the London-based exchange ICE. The auctions will be held on 29 November, 13 and 18 December for 4 269 500 EUAs each.

Steel and cement industries need to find new technologies not discovered yet, if they want to go in line with the Paris agreement under 1.5 C. If zero emissions can be achieved for example in the energy sector by 2050 with energy efficiency, increased usage of nuclear and renewables, for steel and cement production this is not sufficient for long-term Paris goals.

 

Market Data

EUA DEC-17:

Date                      Open    High       Low       Last

16.10.2017          7.32       7.45       7.24       7.36

17.10.2017          7.34       7.54       7.34       7.43

18.10.2017          7.40       7.83       7.40       7.79

19.10.2017          7.85       8.05       7.60       7.69

20.10.2017          7.64       7.80       7.45       7.57

 

EUA AUCTIONS:

Date                      Country               Price      Volume                Ratio

16.10.2017          EU                          7.25       4 261 500           2.54      

17.10.2017          EU                          7.45       4 261 500           3.04        

18.10.2017          UK                          7.56       4 269 500           2.59      

19.10.2017          EU                          7.86       4 261 500           3.32      

20.10.2017          DE                          7.56       4 473 000           2.32