Wednesday, October 9, 2013

Looking beyond the EIB announcement

Yesterday evening shortly after market close the EIB announced it would start selling the remaining 100m EUA out of the NER300 reserve. News of the pending EIB NER300 announcement had already caused prices to slip below 5.00 EURO
At the time of writing we find ourselves trading at 4.77, the first significant dip below 5.00 since 5 September. Currently carbon market seems to find a support at 4.70 - 4.75 euro – the biggest question is whether this support is technical or psychological.

Technical

1. If we look at Fibonacci retracement, taking the low of mid-April and high of mid-September, we could find support around 4.60
 

2. If we look at the retracement of the most recent upward move, we find a support at around 4.77


3. We have 100 DMA at 4.52, 200 DMA at 4.46

Fundamental 

1. The US may actually soon find a common ground on the budget, and market commentators feel the USD could strengthen having an effect on the EU energy complex, favouring gas over USD priced coal and thus trimming EUA demand.
2. The long awaited allocations should be arriving at installation accounts any day now, providing additional supply.

Psychology

1. It appears many installations were caught by the move above 5 euro and may consider the risk of carbon falling further vs missing the opportunity to hedge below 5.00 euro as favouring the latter.
2. Secondly, the market should have priced in the sale of 100m EUA already – when the sale of NER300 was originally announced in early 2011. In reality the only missing piece of information was the timing of the sale. We now know the sale will be over 5 months counting from mid-November. This gives us approx. +1m EUA daily to the volume we expected in the mid-term future.

Conclusion: There are many contradictory points however this commentator feels that the bears may have a little longer to play and carbon price may still drift lower in the short term; in the longer term I feel we could see prices above 5 euro.

No comments:

Post a Comment