The Dec 07 carbon contract is down 25 cents to EUR 1.05/tonne, while the Cec 08 contract is currently trading in a spread of 16.50 to 16 85/tonne, a fall of up to 90 cents. In the power markets, the German Cal 08 is down 70 cents to EUR 53.90/MWh, while the Nordic front year contract fell 1.20 to EUR 42.10/MWh.
Market players have generally been puzzled by the market reaction to the publication of the verified emissions data on the EC’s community independent transaction log (CITL). “In my opinion, the outcome of the verified data does not justify this correction we are currently seeing on the market,” Steffen Kiselis, analyst at Vattenfall Europe told Montel Powernews.
Another player was of the same opinion. ”The reaction to the 2008 carbon contract is exaggerated,” argued Stefan Kleeberg of carbon market asset managers, 3C Markets. But he also pointed out that after the gains seen last week, the market was largely back to where it was two weeks ago.
Market participants also agreed that the figures came short of market expectations last week. “The system was actually predicted to be longer than it finally turned out, although there were several expectations hovering on the market about the surplus,” argued Kiselis.
Not as long as expected
This was true of some member staes in particular. “Germany is not as long as estimated,” commented Steffen Sachrowitz, analyst at Energy Brainpool. “In total Germany is 18.8 million tons long compared to an allocation of carbon credits of 496 million tons for 2006”, he said. Compared to 2005 the German long position decreased from 20.2 to 18.8 million tons.
“In total, the states participating in the EU-ETS are 100 million tons long, a similar position as in 2005,” said Sachrowitz, who could see “no significant impulse” for the carbon price Dec 07. “From the current low levels Dec 07 might fall a tick further,” he suggested. Kiselis agreed: “Regarding phase 1, there is no reason to believe in prices above EUR 1. So the market should come further off from the current levels and sooner or later equalize zero.”
Bullish long term
But in the longer term, the view is more bullish. “For the second phase, the verified figures should really fuel some bullish sentiment, as the expected surplus was lower than anticipated,” Kiselis continued. “When you take into consideration the inability to predict the length or the shortages of the system, it should be clear that a huge risk premium exists on these contracts. For me the data release was bullish news.”
In addition, all players pointed to the incomplete nature of the data published today, with only about 93 per cent of the emissions of 2005 reported so far for last year. Also, installations that were allocated 190m tonnes in 2006 have not so far not submittedany data. What’s more, there is no data from Belgium or Portugal, who allocated almost 97m tonnes for 2006.
“It is important to notice that not all installations have been reported yet, and these verified allocations cover only 93 per cent of the total system,” said Kiselis. ”So it is not right to compare today’s numbers to total allocations. According to my calculations, there was a surplus of 13m tonnes in 2006 compared to one expectation of a surplus of 60.8 m tonnes.”
Problematic data release
Kleeberg of 3C Markets also questioned the manner in which the data was released by the European Commission. ”I would have preferred to have all the data and not just 90 per cent of it,” he said. ”This could have been done better – it’s not a big improvement over last year.”
