Friday, November 15, 2013

Looking for direction

Carbon price has change a little since the beginning of the week. There wasnt too much of action and it seemed that day traders dominated the place. Narrow daily range of prices (10 eurocents), lack of direction - doji candles, relatively strong resistance from 100, 20 and 30 DMAs (4.70, 4.72 and 4.79 respectively) kept most of the buyers away. Many are looking towards any signs of first sales from NER300 programme by the EIB, to determine their short-term future behaviour.

Market seems to have support @ 4.40-4.50. 4.40 is now the 200 DMA and 4.50 seems like psychology of the market.

Additionally it cannot go unnoticed that recently every upward correction failed to break above the level of its downward counterpart – compare with chart.

Friday, November 8, 2013

YES to a start of a trilogue

Headlines read:

“EU diplomats on Friday agreed to begin talks on a legal text to remove some of the surplus permits from the EU Emissions Trading Scheme.”
“EU Nations Said to Approve Mandate for Carbon-Fix Negotiations”
“EU Council approves CO2 #backloading proposals”

But what actually happened and what are the direct and indirect effects?

First things first, no one approved the backloading. The vote was merely to give a mandate to the Lithuanian Presidency (of the EU) to enter into trilogue negotiations, where it will defend the informal Council position on backloading.

In practice the Council Presidency would go into trilogue negotiations only if it had the guarantee they are supported by a qualified majority of Member States – a confirmation of which they received in todays vote. The text agreed during the trilogue will need to be formally approved by both institutions (and a QMV will be needed for that vote). This is why a YES in today’s vote was needed.

The negotiated text during the trilogue meeting(s) could then be adopted:

  • in the European Parliament's Environment Committee the week starting 25 November
  • in the European Parliament's plenary the week starting 9 December. 
  • in Council during the Environment Council on 13 December or during the European Council on 19/20 December

Clearly the market behaviour was to some people’s disappointment but also certain people took it with no surprise.

  1. The vote was not on backloading itself – we cleared a small hurdle of getting the informal support for the measure, but as you see from the points above – it is not yet a done deal,
  2. A YES vote restored certain confidence from the market in the EU actually stepping up to the challenge and pushing the backloading thru,
  3. The market still awaits official position of Germany and Spain,
  4. Despite the measure going through, backloading alone will not do anything for the ETS - it is not THE FIX. We believe the market would expect further flexible supply mechanisms being proposed, debated (implemented?),
  5. We have upcoming European Parliament elections outcome of which could change the support for EU ETS, plus on-going economic recessions influencing  every market,

Having all the above in mind, we believe the price can be in a range of 3.50 – 6.00 euro in the mid-term. Now this does not sounds like a buy/hold/sell recommendation one may see in the stock market, but think about it. Market is in mid 4.50-4.70. Taking the emotions aside the risk / return of buying vs doing nothing is almost balanced. Now add the emotions to it (this market has it a lot), + your potential budget constraints regarding the price at which you need to buy carbon, + the value of possible savings to the budget vs. the burden to the business in case the budget is blown = a recommendation Buy carbon now (partially perhaps) or Wait.