With forecast 2016 upside of 35%, EU carbon still a buy -SocGen

Published 17:00 on March 16, 2016  /  Last updated at 17:00 on March 16, 2016  /  EMEA, EU ETS  /  No Comments

Analysts at French investment bank Societe Generale on Wednesday left their forecasts for EU carbon prices unchanged, predicting that front-year EUAs would gain some 35% from current levels by year’s end.

Analysts at French investment bank Societe Generale on Wednesday left their forecasts for EU carbon prices unchanged, predicting that front-year EUAs would gain some 35% from current levels by year’s end.

In a research report, the analysts said EUAs remain a ‘buy’ and forecast that the benchmark futures would finish the year at €6.80, before climbing to €7.00 by the end of 2017 and to €7.80 by end-2020.

Prices have climbed back somewhat since plumbing 22-month lows of €4.62 last month, but they remain largely rangebound around a €5 epicentre.

“While the rebound has essentially fizzed away, we still maintain that current price levels represent an attractive entry point, with pay-off skewed to the upside – with the long term in mind,” the SocGen analysts wrote.

“As for the more immediate future, we do not expect prices to bounce significantly any time soon unless the current poor macro and low fuel price environment changes for the better,” they added.

“In a low fuel price environment and with a somewhat tame immediate future as far as coal, gas and power are concerned, carbon does not have enough autonomy to continue breaking out to the upside sustainably.”

EU carbon prices have fallen by around 40% since the end of 2015, on what observers said was a mix of speculative positioning, changes in utility hedging patterns, unseasonably warm weather, and some selling from industrials.

SocGen noted that EUAs appear to be establishing both a bottom and a new set of support and resistance levels, with €4.40 and €6.50 identified as the most relevant ones.

Additionally, the bank pointed out that based on momentum indicators, allowances prices have exited their ‘oversold’ zone.

“While this is promising, there is no guarantee that it will portend to further gains – after all the market is still trying to find its footing after the price fall,” the analysts added.

By Mike Szabo – mike@carbon-pulse.com

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