March was one of the most volatile months in EU ETS history. Prices ended the month 31% higher than February’s close at €13.28, having traded in a range between €9.92 and €14.17 throughout the month. EUAs have now risen for eleven consecutive months!
A few statistics to demonstrate just how far the market has come: March ended with prices 62% higher than they began the year. Front-December EUAs have doubled in price since September 2017. March 28 saw the biggest daily volume since 2016, while March 21 saw the biggest one-day price increase (9.5%) since September last year.
Trading was dominated by a combination of continued speculative buying and industrial demand, as installations topped up their EUA balances ahead of the April 30 compliance deadline.
Traders expressed shock at the scale of the market’s increase, expecting that each new euro of gain would lead to a correction as speculators took profit, only to be surprised by yet more advances in the price.
It has been the rise of speculative traders that has attracted most attention this month. Most traders believe that large hedge funds started late last year to build large positions as prices began to rise, and the more rapid increases of the last three months will only have added to their number.
The high cost of EUAs adds a considerable burden for industrial companies that don’t get free allowances matching their emissions. Many have been accustomed to buying what they need every March without worrying too much about the cost – but this year is very different.
Towards the end of March we heard some reports of industrial companies almost panicking as they tried to buy EUAs before prices rose even further. The deadline to surrender EUAs is at the end of April, but for various reasons many companies will want to have completed their annual buying in March.
The price has already exceeded even the most optimistic analyst forecasts for 2018, and we expect most to issue updated predictions early in April.
The coming week will see publication of verified emissions data for 2017. Most analysts expect that CO2 emissions grew by around 0.5% last year, as industrial output increased. At the same time, poor nuclear reliability and very low hydro levels meant that more fossil fuels will have been burned to generate power, but increased penetration of renewable energy will have offset those gains.
In terms of price expectations, it has become difficult to develop technical price targets. Because EUAs are now trading at levels that have not been seen since June 2011, analysts have to look a long way back to identify support and resistance levels.
Traders are very reluctant to call an end to this rally, since previous guesses have been proved wrong. Towards the end of the month support appeared to consolidate at €13.00: the market made a couple of attempts to drop below but was met with determined buying each time.
By: ALLCOT Group