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Focus: Market mulls impact of upcoming NER300 sales

10 Oct 2013 17:04:54 | edcm

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News that an additional 100m allowances from the NER300 funding scheme will be sold from mid-November left a bearish mark on carbon prices, but a support level is now seen around €4.50/tCO2e.

On Tuesday, the European Investment Bank (EIB) – tasked with marketing the NER300 allowances on the European Commission’s behalf – said the sales are expected to take place over a five-month period ( see EDCM 8 October 2013 ). An average 20m EU allowances (EUAs) a month are expected to be sold on ICE Futures Europe and the European Energy Exchange (EEX) as future contracts on the secondary market.

“[I am] guessing that it will be something like 25m this year, and then 25m in each of January to March,” said Trevor Sikorski, head of natural gas, coal and carbon analysis at consultancy Energy Aspects.

ICIS’ analytics firm Tschach Solutions, assuming a break between mid-December and mid-January, expects 25m to 27m EUAs to be sold in 2013, increasing excess supply in the fourth quarter by 40%.

The NER300 sales will add supply at a time when EUA auction volumes are already at record highs, with Poland selling all its 2013 allowances between September and December.

And their start will coincide with EU industrial companies receiving their free allowances, which is due to happen before the start of December and could trigger some selling from these companies.

Carbon prices ticked down on Monday when news spread the EIB would make an NER300 announcement the following day. Many traders correctly predicted the announcement meant sales were likely to start earlier than 2014, which they had previously expected. The bellwether December 2013 contract shed €0.10/tonne of CO2 equivalent (tCO2e) each day this week, closing at €4.80/tCO2e on Wednesday, ICIS data shows.

Sources said the EIB announcement had only accelerated the existing downward trend in the market, but predicted support around €4.50-4.70/tCO2e, with prices not likely to exceed €5.15/tCO2e.

“In the very short term I don’t expect prices to fall by much more. I think the support at €4.50/tCO2e will remain,” said Matteo Mazzoni, carbon analyst at consultancy Nomisma.

“The market was looking weak before the announcement and it triggered a lot of selling,” said a trader at a trading house. “€4.50/tCO2e is indeed the downside target. I think we will hold here above €4.72/tCO2e for the short term,” he added.

A clearer direction for prices is expected when Germany will finalise its position regarding the European Commission back-loading proposal. Silvia Molteni

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