SparkChange Carbon Market Monthly Report (October 2023)

November 6, 2023

October Developments:

  • In October, prices started the month on a multi-month low of under €80/tonne. In the first two weeks, prices increased to the intra-month high of €85/tonne before turning again downwards. In the rest of the month, the market traded constantly down to the intra-month low of €78.25/tonne on the second last day of the month.
  • Price developments overall have been – again – very closely linked to investor positioning. According to CoT1 data, investors reduced their short position in the first two weeks of October from -44.6m end of September to -37.2m on 13th of October while long positions held steady around 27m. In the following two weeks however, investors increased their short positions again reaching over 48m on 27th October. On a net basis investors held -17.7m at the beginning of the month, and ended it with a net short position of nearly -22m.
  • In the power market, developments did not change in the last few months and fossil generation continues to decrease, while renewable generation increases. January to October, fossil generation in the EU has been 20% down y-o-y while renewable generation are up by 10%.

Outlook

  • With the heating season ramping up, temperatures will play an increasing role in overall power demand and hence power generation. At the same time, other weather conditions (solar radiation and wind speeds) will determine the share of renewable power generation in the overall power mix. Weather developments will hence significantly impact demand for EUAs from the power sector
  • On the industrial side, it will be key to watch how industrial output develops in the last quarter of the year and the respective effects on EUA demand.
  • Finally, the positioning of investors will be one of the determining factors for EUA price developments. With investors holding a nearly all-time low short position it will be key to see whether investors will be able to sustain their position or whether parts of the short position till be liquidated.

Key Events to Watch:

  • No particular events to watch in November

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1 Commitment of Traders report published by the Intercontinental Exchange

October 2023
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