September Developments:
- The downward trend from mid-August carried over into September with prices reaching nearly €80/tonne in the first half of the month. Alongside this price development, investment funds – according to the CoT Report1 – showed a further decline in EUA positions from a net short position of 12m beginning of September to a net short position of 22m by the middle of the month.
- Even with prices increasing again to levels around €84/tonne by 25th September, the net short position reduced only slightly; to roughly 18m by end of September.
- The net short position by funds is likely driven by overall negative fundamental developments – EU industrial production down by 2.2% yoy by end of August; emissions from power generation overall significantly down yoy; and furthermore, decreasing clean dark spreads in Germany since mid-July.
Outlook
- With high auction volumes and a slightly negative demand picture, prices potentially continue to be under pressure in the coming weeks and months. Additionally, with winter season about to start temperatures will play an increasing role again when it comes to emissions from the power sector.
- Next to emissions, hedging demand from utilities will be a key determining factor for price formation going forward. In the light of this, the development of clean dark spreads will be an indicator for hedging demand.
- With no regulatory events being expected before end of year, the market will be driven by supply and demand fundamentals.
Key Events to Watch:
- Carbon Forward conference 11-13 October with Jan Ahrens, CEO of SparkChange, participating as speaker on the first day.
1 Commitment of Traders report published by the Intercontinental Exchange