Spot NZUs traded in a tight range this week, occasionally testing year-high levels of NZ$14.65 ($10.02) but ultimately failing to push on towards NZ$15 amid an ongoing lack of news from the government on the ETS review.

The spot allowances eventually closed at NZ$14.52 on Friday, up 2 cents week-on-week, maintaining the major gains seen over recent weeks.

The New Zealand carbon market is mostly focused on spot trading, although brokers OM Financial this week reported 450,000 NZUs for April 2019 delivery going through at between NZ$16.75-16.80, illustrating that some traders are willing to bet the allowances have yet to hit a ceiling.

“This was about 5.3% of carry based on spot which looked very attractive relative to forwards of recent times which have been over 6%,” OMF said, referring to the yield between the prompt and April 2019 contracts.

Spot trading remained healthy with well over half a million changing hands over the week, though buyers were hesitant to enter the market at higher levels until the government reveals details of the ETS review outcome.

Most market participants expect the 2-for-1 provision to go, but there is uncertainty over whether it will be completely removed immediately, or gradually over the next year or longer.

The speed with which the provision is removed will be crucial to demand levels going forward, and some traders are concerned that if the rule isn’t completely removed until 2020, the recent bull run might have been an overreaction.

Spot NZU prices have increased 86% since the ETS review papers were released last November.

By Stian Reklev – stian@carbon-pulse.com

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