Some sharp price moves in coal, approaching and breaking through what were considered significant technical support and resistance levels, drove over-the-counter (OTC) liquidity in Germany and smaller neighbouring markets in March.
More subdued movements in gas prices meant that volume dropped in the UK and France, where the fuel occupies a larger share of the power mix.
German traded volume grew 42% month on month and 29% year on year to reach 423TWh. Although increases were seen across almost the entire market, volume on the far curve – which makes up around two thirds of all German power trading – was particularly high. This was due to coal price volatility, which is the predominant driver of German power liquidity. Strongly bullish or bearish sessions force traders to enter the market and adjust their positions, and when prices hit technical levels, traders wishing to take up the opposite position will often attempt to reverse the trend.
March started strongly in terms of liquidity, as Rotterdam coal futures gained to approach a technical resistance level of $70.00/tonne, before being forced back down.
There was another surge in liquidity a week later, as prices hit a technical support level at $64.00/tonne following a strongly bearish day. When prices finally moved below this level, for the first time since 9 January, there was another burst of liquidity.
Prices then jumped a week later, as news broke of the extent of damage to coal infrastructure following a cyclone in Queensland in northeastern Australia. So far this year, 29 March has been the most liquid day in German power.
Coal prices are likely to remain strong in April, while traders await news of repairs to Queensland railway lines, which will last into May according to operator Aurizon Holdings. Although Queensland is more important for the production of metallurgical coal, analysts estimate that several million tonnes of thermal coal used for power production will be affected by the flooding.
A coal trader at an international production company said that prices could gain further if Australian coal buyers disrupt supplies that would otherwise head to Europe. If they approach or, especially, surpass $70.00/tonne, liquidity could spike quite dramatically.
“The general outlook [setting aside the Australian cyclone] is slightly bullish too,” said the trader. “Chinese coal capacity cuts have been quite severe in some regions.”
While French liquidity gained 57% month on month to reach 50TWh in March, this was a 29% decline year on year. Near-curve volume held up relatively well, as a bearish trend in prices gave way to volatility in the second half of the month. However, far curve trading – which typically accounts for around half of French power volume – declined almost 80% between Q4 ’16 and Q1 ’17.
Low hydropower stocks and declining nuclear availability in France, combined with the risk of a summer heatwave, should see volume climb on the near curve in April.
However, an increase to the total of 90TWh that was traded in April 2016 is unlikely, with volume so far down on the far curve.
A number of smaller markets tied to Germany also saw liquidity surge in March. The outlook continues to look robust for Hungary and the Czech Republic, due to low hydropower stocks in the Balkan region (see EDEM 31 March).
Elections appear to have contributed to a spike in liquidity in the Netherlands. Total volume of 1.9TWh was recorded on 21 March, the highest since November 2015. The day before, prime minister Mark Rutte had announced his intention to seek a four-party governing coalition. It shortly emerged that this would likely include GreenLeft, which is demanding concessions towards cleaner energy policies (see EDEM 20 March 2017). Prices moved sharply down in the Netherlands on 21 March, which would be consistent with traders selling volume in anticipation of higher renewables integration.
The UK is more insulated from low European hydro reserves and the risk of a summer heatwave, and saw declining volume in March. However, liquidity may pick up on the far curve in April if gas prices become more volatile, driven by oil. Geopolitical tensions in Syria and Iraq at the start of the month mean this is a distinct possibility. email@example.com