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Market eyes further upside for strong carbon price in February

03 Feb 2014 17:29:53 | edcm


Traders project further upside for prices as the market expects members of the European Parliament (MEPs) to vote in favour of fast-tracking back-loading. Carbon allowance prices climbed steadily over the course of January as optimism that back-loading would go ahead has helped to boost prices.

The office of the ENVI committee chair, Matthias Groote, said on Monday that it was “likely” that a vote on fast-tracking the measures implementation would be on the agenda on Tuesday, which would provide further direction to prices on the day.

Market participants polled by ICIS on Monday expected the Conference of Committee Chairs (CCC), which has the question of whether to speed up back-loading’s implementation in its court, to back the move.

This could help lift prices to between €6.00-7.00, traders suggested, a level not seen by the EU allowance (EUA) benchmark contract since January 2013. However, some cautioned that any bullish lift would be limited by the fact that a positive vote outcome was already priced in. One source also said that it was hard to anticipate how low the price could fall in the event of a no vote.

Policy price move

The fate of the back-loading timeline has driven prices since the start of the year.

The EUA benchmark December 2014 contract close averaged €5.07/tonne of CO2 equivalent (tCO2e) between 2 and 31 January, which includes a low of €4.60/tCO2e on 9 and 10 January, and a high of €5.75/tCO2e on 30 January.

This is 5.7% lower than the average price of the benchmark front year in January 2013, when the benchmark contract closed at €5.38/tCO2e, according to ICIS data. However, the January 2014 closing price for the front year has averaged more than in December 2013, when the front year averaged €4.92/MWh, showing how the price has climbed in recent months.

Prices could continue to be buoyed in February by traders sitting tight until the final vote on whether the back-loading proposal’s implementation will be fast-tracked. “Simply everyone goes long because no one wants to be caught on the wrong side,” said one source at a trading house last week.

There are several steps still involved in getting fast-track approval for back-loading, which could see the market taking a wait-and-see approach over the course of this month.

The decision is now up for vote at the Conference of Committee Chairs (CCC), which will next meet on Tuesday 4 February. At the time of going to press, the CCC had yet to confirm whether the item would be on its Tuesday meeting agenda. Groote’s office on Monday said the item was “likely” to be dealt with on Tuesday, but added that this would only be confirmed on the day.

If the CCC fails to address the issue on 4 February, it will have another chance to do so at its next meeting on 25 February.

If the CCC approves a shorter scrutiny period, then there will be a plenary vote on the matter. The next parliament plenary sessions will take place over 3-6 February, with another meeting occurring over 24-27 February. Marie-Louise du Bois

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