'CO2 to correct on fundamental asymmetry'

The price of the Dec 09 EUA contract may fall to EUR 14/t in the near term as the carbon market appears to be divorced from fundamentals, Société Générale analyst Emmanuel Fages said on Tuesday.
The Dec 09 EUA contract is currently trading down EUR 0.37 at EUR 15.50/t on the ECX/ICE platform, but has traded in a spread of EUR 13.80-16.00/t during May.
The recent rise in EUA prices was a result of the continuing rally of the oil and stock markets, said Fages. What was more, the price surge in both markets could indicate that markets were pricing in the end of the crisis and the recovery, he added.However, with economic recovery in Europe not expected before 2010, carbon market fundamentals remained “stubborn”, he said. (Source: Montel Powernews)

“Q1 09 emissions are confirming to be quite low, driven by awful activity levels,” Fages added. “It will be very hard for 2009 as a whole to be short on allowances. So once the enthusiasm is over, consolidation will happen.”

Caught out by bull
Some players were not convinced by present price levels but were buying in order to not miss the rise - while some might even have been caught short in the bull market, he said.

“It means operators could be quick to take profit, when the momentum loses breath.”

Players should keep a close eye on the equity and oil markets in the near term, he added. “In the coming days any drop in major equity indices will probably mean a drop in carbon prices, as the correlation is very high for now.”

Fages expected carbon prices to trade between EUR14-16/t over the coming month, and then “range-bound until the end of the summer, before slumping closer to early 2009 values on some EUA excess sales by long industrials during the autumn”.

Prices would finally resume higher levels, closer to present ones, with the real recovery in activity and power demand in the winter, he said.

Société Générale has upwardly revised its forecasts for spot EUAs in the second quarter of this year to EUR 14 /t, from EUR 11/t previously and EUR 11.5/t for spot CERs, from a previous estimate of EUR 10/t. In the third quarter, these forecasts rise to EUR 15/t and EUR 12/t respectively.