Spot NZUs closed at NZ$9.50 ($6.16) on Friday, down 1% on last week as buyers remained unconvinced that underlying market fundamentals could support a higher price in the long term.

The spot contract traded in a tight NZ$9.50-9.60 throughout the week on healthy volumes but ended at the lower end of that range, in line with market expectations that the push towards double digit prices would be over, at least for the moment.

“There still seems to be hesitation on both sides. Buyers complain that they don’t like these prices and fear buying and then seeing them fall away as more supply emerges,” one market participant told Carbon Pulse.

Most market participants expect the ongoing ETS review to result in the end of the “2 for 1” provision, which would potentially nearly double market demand.

But around 140 million unused NZUs sit in the registry and the government is contemplating whether to issue more NZUs to make up for the cut in access to UN offsets, which has caused some observers to question how far the price might go up on the back of the review.

The price has gone up by NZ$1.65, or 21%, since the government released the ETS review paper on Nov. 24 but is little changed over the past two weeks.

“The market is sitting at a nice equilibrium. There’s reasonable procurement buying while sellers remain picky about levels. We still believe the market will consolidate at mid-high $9 levels,” brokers OM Financial said in an emailed note to clients.

By Stian Reklev – stian@carbon-pulse.com

Not yet signed up to CP Daily? Subscribe to our free newsletter here