EU ETS Report – June 2019

EU carbon ended June 7.4% higher than its closing May level, boosted mostly by a strong surge in the final week of the month. Soaring temperatures across Europe combined with technical factors to trigger a surge of buying.

Carbon has averaged €23.91 for the first half of the year, the best six-month performance since at least 2008.

The December 2019 contract closed the second quarter at €26.28 on ICE Futures, with monthly front-December screen volume of 314 million EUAs representing a nearly 9% drop in trading activity from the prior month.

The middle period of the month was characterised by price stability, with the period from 10 June to 21 June seeing prices hold steady in a range either side of €25. Much of this was due to relatively unchanged spreads in the power sector, with falling gas prices keeping a lid on coal generation.

Participants said there are still a number of gas-fired plants in Germany that have yet to be brought out of mothballs, while some coal plants are still running due to positive margins or other upstream factors, such as linked coal mines that must be kept open.

At the same time, EUA buyers seemed content to purchase whenever prices dipped below €25, thereby setting a floor for the market.

Towards the end of the month, however, there were unsuccessful speculative attempts to push prices below this level, and pressure began to build for a rally. In the final week of June, weather forecasts called for a period of very high temperatures, and this boosted the chances of fossil generation being called on to supplement strong solar and wind generation.

The failure of the daily auction on 25 June may have added to bullish sentiment in the short term, but the lost volumes were spread over the next four sales, which will include the 1-2 June auctions.

Consequently, carbon rallied very strongly at the start of the final week, with prices jumping to a two-month high of €27.48 on 26 June with daily front-December volume briefly moving above 20 million EUAs.

However, end-of-quarter profit-taking took the shine off prices later in the week, though weekly volume topped 90 million EUAs for the first time since mid-April.

The month ahead offers a mixed outlook. With the summer holiday season beginning we can expect a drop in participation, but any sustained period of high temperatures will boost the call on fossil generation and may support carbon prices.

Auction volumes in July will jump by a third from June, and this may act to depress prices over the month. Against this however, we must weigh anticipation of the annual 50% reduction in sales volumes in August, which has helped boost prices in every August since 2008. Compliance buyers may well be looking to secure EUAs ahead of their annual holidays, and this may act as a support.

o trigger a surge of buying.

Carbon has averaged €23.91 for the first half of the year, the best six-month performance since at least 2008.

The December 2019 contract closed the second quarter at €26.28 on ICE Futures, with monthly front-December screen volume of 314 million EUAs representing a nearly 9% drop in trading activity from the prior month.

The middle period of the month was characterised by price stability, with the period from 10 June to 21 June seeing prices hold steady in a range either side of €25. Much of this was due to relatively unchanged spreads in the power sector, with falling gas prices keeping a lid on coal generation.

Participants said there are still a number of gas-fired plants in Germany that have yet to be brought out of mothballs, while some coal plants are still running due to positive margins or other upstream factors, such as linked coal mines that must be kept open.

At the same time, EUA buyers seemed content to purchase whenever prices dipped below €25, thereby setting a floor for the market.

Towards the end of the month, however, there were unsuccessful speculative attempts to push prices below this level, and pressure began to build for a rally. In the final week of June, weather forecasts called for a period of very high temperatures, and this boosted the chances of fossil generation being called on to supplement strong solar and wind generation.

The failure of the daily auction on 25 June may have added to bullish sentiment in the short term, but the lost volumes were spread over the next four sales, which will include the 1-2 June auctions.

Consequently, carbon rallied very strongly at the start of the final week, with prices jumping to a two-month high of €27.48 on 26 June with daily front-December volume briefly moving above 20 million EUAs.

However, end-of-quarter profit-taking took the shine off prices later in the week, though weekly volume topped 90 million EUAs for the first time since mid-April.

The month ahead offers a mixed outlook. With the summer holiday season beginning we can expect a drop in participation, but any sustained period of high temperatures will boost the call on fossil generation and may support carbon prices.