Downside to Hungarian June ‘17 electricity contract limited by high spot

Irina Peltegova

10-May-2017

The Hungarian front-month electricity contract has limited downside potential before expiry as higher-than-expected spot delivery so far in May is unlikely to subside before the end of the month, despite rising regional hydro stocks in the short-term.

The Hungarian June ’17 Baseload contract averaged €39.09/MWh in April but has risen to an average of €40.65/MWh in May because of a bullish spot in Hungary as a number of regional outages and low hydro stocks squeezed supply.

Even though hydro availability is showing signs of recovery in Romania, Bulgaria and Serbia, spot prices are expected to remain supported for now. Therefore, the June contract is unlikely to break below €40.00/MWh, according to traders.

“[I don’t see] downside potential for Hungarian June this and next week. These unexpected May [spot price] results will affect traders’ psychology,” one regional participant said.

Some downside could emerge in the final trading sessions before expiry, another trader said, as some regional power plants are scheduled to return to the grid and should pressure the spot.

Two units with a combined 860MW capacity at Serbia’s Nikola Tesla (TENT) coal-fired complex are set to return on 27 May, according to ENTSO-E data.

“If you are looking for downside to appear before the [June] contract goes into delivery, then you have to wait until the very last couple of days,” the trader said.

The Day-ahead Baseload product needs to drop to just above €40.00/MWh on non-windy days to trigger a downward re-evaluation of the front-month, he added.

In delivery, June prices could be below the current front-month traded levels as the regional supply picture will improve significantly compared to May. But the downside could be limited by weather-driven demand and potentially weak hydro levels.

Romania

The absence of Romania’s second 700MW Cernavoda nuclear unit, which went offline on Saturday, will continue to offer support to the regional spot until the scheduled return date of 2 June.

Romanian reservoirs posted the biggest week-on-week rise so far this year, gaining 7.8 percentage points but it was hard to say at this stage if the trend will continue, according to one local trader. Stocks still remain at a multi-year low.

Run-of-river generation is likely to rise. Flows on the Danube river stood at 6,900 cubic metres per second (cbm/s) on Wednesday, slightly below the average in May to date of 7,250cbm/s, according to data from the Romanian National Institute of Hydrology and Water Management. Flows are forecast to gradually rise over the next seven days and reach 7,300cbm/s by Tuesday.

The Romanian front-month contract has kept an average discount of €1.00/MWh to Hungary so far in May as the expected return of Cernavoda and high solar production are likely to keep Romanian spot prices below Hungary in delivery.

Serbia

Similar to Romania, Serbian hydro stocks were also on an upward trajectory, reaching just under 350GWh in week 18, according to ENTSO-E data. State-owned utility EPS has refrained from buying or selling via email tenders so far in May, pointing to a balanced market.

Hydro in Serbia and the western Balkans was still considered low and was not expected to improve much into next month, two local traders said.

Unless TENT maintenance is extended, EPS is unlikely to buy significant quantities for June, one of the traders said.

Greece

Greek reservoirs defied the upward trend elsewhere in the region and remained range-bound week on week.

Traders have previously said that low hydro stocks will be one of the key bullish drivers for prices next month. irina.peltegova@icis.com

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