Panic selling forces carbon prices to all-time low

London, 24 November 2011

EU carbon fell 9 percent to an all-time low of 7.68 euros on Thursday on eroding faith in Europe’s economy, growing permit supply and a bout of automatic selling. EU Allowances for December delivery rose to 8.59 euros this morning before crashing down to the intraday bottom shortly before the Netherlands announced it had auctioned 2 million permits at 8.05 euros, further stoking the already oversupplied market.

The bellwether futures recovered somewhat in afternoon trade, climbing back to 7.87 euros by 1616 GMT, 57 cents below Wednesday’s settlement.

“Some of this must be panic selling,” said one emissions trader at a European trading house. “Every time we thought we could bounce back because of technical signals, it failed ... so people slowly realise there is no upside in the short-term.”

Less than 30 million EUAs had been traded across all vintages and exchanges at the time of press, significantly below the average seen on volatile days and indicating a lack of buyers that would help support prices.

Front-year EUAs are now down 17 percent for the week and 24 percent so far in November. Secondary CERs fared worse than EUAs, with the December 2011 contract dropping 10.8 percent to a record low of 5.26 euros and the 2012-vintage plummeting 13.5 percent to 5.05 euros, both well below the cost of generating many types of offset.

“It’s very plausible that there are some CER stop-(losses) being triggered,” said another trader at a utility.

The collapse has hit project developer shares and prompted banks and traders to dump credits at a loss to minimise further bleeding on their trading books.

“It seems some CER portfolio players have a significant amount of their primary CERs unhedged,” a third trader said, explaining that the price slide had triggered automatic selling.

Analysts said the euro zone debt crisis will starve heavy emitters such as steel and cement companies of credit, forcing them to sell EUAs to raise capital.

“There are signs that the UBS report may have spooked some industrials to sell their surpluses,” a fourth trader said, referring to the bank’s prediction last week that EUAs could fall to 3 euros next year.

Meanwhile, analysts at Thomson Reuters Point Carbon cut their average EUA price forecast for 2013-2020 by 45 percent to 12 euros.

This week’s collapse has also left traders hoping for some form of political intervention to bolster prices.

"The only thing that can stop this is political intervention, otherwise it is over," warned the first trader.

"We'll end up in a very low price environment with massive length, just like phase one (of the scheme).

Ends --

Thomson Reuters Point Carbon - for Commodities Now.

www.pointcarbon.com