Carbon price surge over for now but sentiment still bullish – participants

The European carbon market is likely to settle down following large price gains in consecutive sessions but overall sentiment remains bullish, according to market participants contacted by ICIS.

On Tuesday, ICE EUA futures jumped nearly 10% to €6.50/tCO2e. On Wednesday, prices rose as high as €6.92/tCO2e before retracing somewhat in the afternoon.

Traders confirmed that the initial bullish catalyst was news that France and Germany will be pushing for an agreement on the European carbon market reform by November.

Analysts believe the reform will include doubling the rate of withdrawal of EUAs from the market stability reserve, cutting oversupply in the European carbon market.

“Once prices reached €6.30/tCO2e they went hyperbolic,” said one participant at an independent trading company. “Short traders were caught with losses, triggering orders at each new high.”

Bullish carbon drove gains in other European energy markets, with coal, gas and power curves up 1-3% session on session on Tuesday.

Traders and analysts agreed that short traders appeared to have stopped their losses by Wednesday afternoon.

“Technicals are not really in play, there are no offers on screen,” said the same trader.

However, the overall sentiment was still bullish. “[Carbon] prices can go up by another euro without a problem. It depends when the German power front-year contract stops its bull run.”

The German Calendar Year 2018 Baseload remained supported on Wednesday but day-on-day moves were marginal.

Nomisma carbon and power analyst Matteo Mazzoni said that the overall trend was upwards, but carbon prices could reverse in the event of a contradictory statement from a large carbon emitter such as Poland or particular industry sectors.

“What I am monitoring is the French nuclear situation,” he said, referring to the news that regulator ASN has ordered a new review into all reactors manufactured at one of the country’s forges. “This is likely to trigger a much bigger jump in carbon prices in the near term.” william.peck@icis.com