'EUA price surge won’t last'

The recent upturn in EUA prices will not last as market fundamentals remain unchanged, said Société Générale analyst Emmanuel Fages late on Wednesday.
The Dec 09 EUA contract has gained over EUR 2 since the beginning of April and was last seen traded at EUR 14.20/t on ICE/ECX. CER prices had also broken through the EUR 11/t barrier, with a last trade up EUR 0.13 at EUR 11.05/t.
'The continued surge in EUA prices even well after the 2008 emission reports can be attributed to hedging by utilities for the year 2009, but also more recently to the involvement of financial participants in the market, wanting to benefit from the rally,” said Fages in a research note.

It was unlikely the upward movement in EUA prices would remain for the long term, since market fundamentals remained unchanged, he said. “The recession and lower emissions are still very much present.”

EUR 15/t in the short term
“We suggest prices could go as high as EUR 15/t in the short term, building on present enthusiasm prevalent in all financial markets, and especially given the approaching EUA surrendering, which has created rumours of a physical squeeze,” Fages said.

However, prices were unlikely to remain at these levels, he added. “Once profit taking happens, consolidation down to EUR 12/t or EUR 13/t could be quick”.

Meanwhile, CER prices remained low “due to persistent selling by originators seeking cash and increasing buyers` uncertainty over the future of the CDM”, Fages said.

Increasing confusion about the future of the Kyoto mechanisms in the run up to the UN climate conference in Copenhagen in December was “far from allaying participants` concerns”, he said.