Spot NZUs bounced back this week after six straight weeks of losses, gaining 2.7% following comments by the climate change minister that carbon prices need to go up.

The spot contract closed at NZ$9.50 ($6.42) on Friday, a five-week high and up 25 NZ cents on last week with nearly half a million allowances changing hands this week.

“We’ve seen a steady build of buy side interest across the fold this week. A strong signal from the new climate change minister that carbon prices must rise surely helped,” one market participant told Carbon Pulse.

Climate Change Minister Paula Bennett told media last weekend that New Zealand’s carbon price must go higher, strengthening market expectations that the government will ditch the 2-for-1 provision, a move that might double market demand.

Traders said a number of new buyers stepped into the market this week while sellers remained careful, resulting in higher prices.

“This market has turned, we have a high conviction that new highs will be struck in the coming months. The 75k offer at $9.85 should be paid before long as the market begins to appreciate the lack of selling interest below $10,” brokers OM Financial said in an emailed note.

It remains uncertain when the government will announce a decision on the priority issues in the ETS review: the 2-for-1 provision and the NZ$25 price cap.

But given that the public consultation on those two issues closed some two months before the comment deadline on other issues, observers say a government announcement might come relatively soon.

By Stian Reklev – stian@carbon-pulse.com

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