November Developments:
- With EUA pricing being in a longer-term bearish trend since Q2 2023, developments accelerated in November and prices reached a multi-month low of roughly €70/tonne by the end of November.
- The month started at slightly below €80/tonne and initially traded down to about €75/tonne before reaching its intra- month high of roughly €80/tonne mid-month. Afterwards prices started to tumble quickly reaching a low around €70/tonne at the end of the month.
- At the same time, the CoT Reports1 show a further slight increase of the short positions of investments funds active in the EU ETS. From a total of -21m short position end of October to approx. -34m end of November, a historical low net short position of investment funds has emerged.
- Although colder weather should have triggered additional EUA demand in November, the overall bearish sentiment, apparent with the on-going short positions of investment funds, over-shadows the additional demand from utilities. On the industrial side, demand does still look weak with overall industrial production not picking up. Weak demand is also exhibited in primary auctions, which saw a low subscription rate.
Outlook
- In the winter season, weather developments are always key to monitor in order to understand short-term demand variations for EUAs. Colder weather coupled with on-going low solar radiation levels and low wind speeds could lead to increased demand for fossil generated electricity in key markets like Germany and hence increase emissions.
- At the same time EUA auctions, the primary supply of EUAs, will be reduced in December due to the Christmas break and will only resume in the second week of January. Historically, the first half of December was always very volatile with the future and option contracts nearing delivery while the timeframe between Christmas and second week of January was mostly bullish.
Key Events to Watch:
- COP (30/11-12/12) in Dubai – historically effects of COPs on EUA prices have been very low
- Last EUA auction of the year: 18/12
1 Commitment of Traders report published by the Intercontinental Exchange