Industrials likely to sit on EUAs amid forecast price rise

31 January 2014 16:47 Source:ICIS

Industrial companies which need to comply with the EU emissions trading system (ETS) are likely to hold onto their emissions allowance reserves amid forecasts of rising prices, market participants said. Failing to sell off allowances would add to bullish market pressure.

Industrial operators in many sectors such as cement, steel, and glass manufacturing are sitting on reserves of allowances which they received for free in phase II of the EU ETS.

With prices expected to rise because of the delayed auctioning of EU allowances (EUAs) to later in phase III, the carbon permits which industrials currently hold could be worth more in the future.

Analysts Energy Aspects predicted that prices will rise to €16/tCO2e in 2018, while analytics firm Tschach, bought by ICIS in 2013, think prices could triple by the end of 2015.

Most industrials will hold onto their allowances in the hope that they can sell them at a higher price later, one trader said on Thursday.

It is likely that companies would only sell their EUAs if they needed the cash urgently, the trader added.

“When industrials didn’t cash in, in phase II, this is because there is a long-term view [not to cash in]” Ingo Tschach, head of carbon market analysis at Tschach said.

But if confidence in business growth is limited, industrial firms may sell off carbon permits because they do not need them, said Trevor Sikorski, head of carbon, natural gas and coal analysis at Energy Aspects.

Production from the sector with the third-highest requirements in the EU ETS – steel – is expected to grow by 2.5% in 2014, according to quarterly figures from the European steel association EUROFER last week ( see EDCM 23 January 2014 ).

Increasing production could lead to higher demand for EUAs from the metals industry.

Companies could hold onto their existing requirements and buy more from the market while prices are relatively cheap. The benchmark December ‘14 EUA contract was assessed by ICIS at €5.60/tCO2e at Thursday’s close. Ben Lee

By Ben Lee