POLL: EU carbon price forecasts trimmed but most analysts still see near-term gains

Published 07:00 on July 3, 2015  /  Last updated at 13:45 on October 8, 2015  /  EMEA, EU ETS  /  No Comments

Analysts have on average reduced their estimates for European carbon prices through the rest of the year, after forecast increases failed to materialise in Q2 and due to lower-than-expected demand from utilities so far this year, a survey conducted by Carbon Pulse showed.

Analysts have on average reduced their estimates for European carbon prices through the rest of the year, after forecast increases failed to materialise in Q2 and due to lower-than-expected demand from utilities so far this year, a survey conducted by Carbon Pulse showed.

Front-year EUAs will end the year at €8.50, according to both the average and mean estimate of 11 analysts polled, some 14% above current levels but off the average €8.90 they predicted in an April survey.

The Apr. 15 poll had found 10 analysts on average predicted the Dec-15 EUA price would end June at €8.00, well above the €7.46 price actually recorded.

However, today’s survey suggests analysts still anticipate near-term gains, which some say will be fuelled by final approval of the MSR by EU lawmakers, further reductions in EUA supply due to backloading, and the ramped-up hedging of forward power by European utilities.

EUAs now will finish the third quarter at €8.00, according to the analysts’ average and mean estimate.

“The formal MSR agreement and utility hedging demand will lead to higher EUA prices during the second half of 2015,” said Thomson Reuters Point Carbon’s Marcus Ferdinand.

“If power companies stick to historically-observed hedging patterns, they will ramp up their demand compared to the first quarter. However abnormally-low clean dark spreads could alter utilities’ hedging pattern and pose a downside risk to future demand.”

Calendar-year German clean dark spreads remain below levels seen in the past few years, prompting a slowdown in utilities buying carbon against their forward power sales.

“Hedging of utilities will be key for the price ramp-up in H2. Reported numbers and our internal models currently show that some utilities slowed down hedging, which goes along with less EUA buying,” said Jan Ahrens, director of market analysis at ICIS-Tschach.

“If this trend reverses, prices can hike even quicker than forecasted,” he added.

UPTREND

James Cooper of Bloomberg New Energy Finance (BNEF) predicted EUAs would breach €8 before the end of July on the back of backloading and a favourable vote on the MSR by the European Parliament on July 6, adding that bullish technical indicators would then build on those gains through the rest of the summer.

“Technicals suggest a rally from €8 upwards is set to follow, pushing EUAs to settle around €8.75 by end-September,” he said.

Benchmark EUA prices, currently trading around €7.45, are up some 1.5% so far this year, but have been largely contained in an upward channel some 60 cents wide since touching a 2015 low of €6.28 on Mar. 13.

“We believe the price is going to stay in its long-term uptrend at least until the end of the year, as we simply don’t see a reason why it should drop out of it. Backloading supports prices until 2016, the MSR is agreed, and thus the risk of a sudden EUA sell-off is lower than ever before,” said Anatoly Stolbov, an energy analyst and trader with Prague’s Virtuse Energy.

He said he’ll remain bullish until the July 6 MSR vote and turn bearish afterwards, predicting the rest of the market will also take a “buy on rumour, sell on fact” mentality.

LESS BULLISH, MORE VOLATILE

Not all analysts were bullish in their expectations, however, with a few noting that utilities may have altered their forward hedging patterns this year, and that any impact from the MSR on the market is likely years away.

“We expect the MSR to fail to cause price increases of importance during the summer,” said Espen Andreassen, an analyst with Markedskraft.

“Furthermore, power consumption for 2015 has had only marginal year-on-year growth. Also, industrial output for some power-intensive sectors shows only modest growth, while development in some of the most carbon-intensive sectors seems so far to have marginally negative growth.”

While trading activity in the carbon market has slowed markedly since EU lawmakers agreed on the design of the MSR in May, some analysts predicted a pick-up in volatility this summer due to Greece’s debt crisis and the launch of the EU ETS reform process later this month.

This would be a departure from the typical summer trading lull seen annually in July and August.

“Greece’s financial problems, the lack of agreement on a ‘Grexit’ among EU member countries, and uncertainty as to the future status of Greece in the EU have a strong impact on all the markets. It shall also be noticeable on the carbon market connected with the EU economy,” said Pawel Jankowski, director of the secondary market department at Poland-based brokers Consus.

“Until the solution to overcome the present impasse is found, an increase in CO2 price volatility is expected.”

Bernadett Papp, an analyst with Budapest-based Vertis, added: “I’m quite convinced that the start of negotiations about the post-2020 reforms of the EU ETS will increase again the volatility in the market.”

FURTHER OUT

Of the 10 analysts surveyed in April, five left their end-2015 price views unchanged for the latest poll, while five trimmed theirs.

Several analysts also cut their longer-term estimates, with the biggest drop seen in price forecasts for the end of 2019.

They predicted on average that EUAs will finish that year at €12.80, down some 11% from their view of €14.40 in the previous poll.

The average forecast for end-2016 prices also dropped by a sizeable 8.3% to €9.90 compared to April.

Only year-end EUA price estimates for 2017 and 2020 saw increases, but they were marginal at 0.5% and 0.3% respectively.

Below is a table of the 11 analysts’ individual forecasts for front-year EUA prices for the end of Q3, and for every year through the rest of the EU ETS’ third trading phase (2013-2020).  All prices are in €.

Q3 2015 End 2015 End 2016 End 2017 End 2018 End 2019 End 2020
BNEF 8.75 10.00 N/A 14.00 N/A N/A 30.00
Commerzbank 8.00 9.00 9.50 N/A N/A N/A N/A
Consus 7.58 7.42 7.50 8.05 8.50 9.32 10.58
Energy Aspects 8.00 7.80 10.50 14.00 14.00 18.00 21.00
ICIS-Tschach 8.50 10.00 14.00 N/A N/A N/A N/A
Markedskraft 7.00 7.00 N/A N/A N/A N/A N/A
Nomisma Energia 7.85 8.10 9.00 9.75 11.20 12.00 14.40
Point Carbon 8.50 8.90 11.40 13.50 15.60 16.70 17.70
Societe Generale N/A 8.32 8.49 8.71 8.98 9.29 9.64
Vertis 8.00 8.50 N/A N/A N/A N/A N/A
Virtuse 8.00 8.50 9.00 9.30 10.00 11.50 14.50
Average 8.00 8.50 9.90 11.05 11.40 12.80 16.85
Median 8.00 8.50 9.25 9.75 10.60 11.75 14.50
Previous poll* 8.00^ 8.90 10.80 11.00 11.60 14.40 16.80
% change 0.0%^ -4.5% -8.3% 0.5% -1.7% -11.1% 0.3%

^ Compared to end-Q2 average estimate for Dec-15 EUAs in April poll
* April poll surveyed views of 10 analysts

By Mike Szabo – mike@carbon-pulse.com

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