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This newsletter was published 9.6.2021 at 5:42pm CEST
The current prices on the European carbon market are as follows:
EUA prices have been trading in a range between 50 EUR and 55 EUR/EUA for the past few weeks. With no real direction in the market, volumes have been steadily declining. This could explain part of the sudden moves that happen intraday as only little volume is required to move the price. One of the reasons for sharp move to the upside this week is option activity as options sellers hedge their exposure by buying futures as underlying instrument moves up. Quarterly options that expire in two weeks have considerable open interest around the current market levels. Biggest exposure lies at 50 EUR strike with 22 million EUAs of open interest. 45 EUR and 55 EUR strikes are close behind with each holding around 15 million EUAs of open interest. Until expiry, market price could stay range bound. As price of EUAs goes higher, many inefficient utilities are going to be shut down. A great example is the EU’s largest emitter – a lignite power plant from Poland which will be gradually shutting down its electricity production. The final unit will be closed in the year 2036, according to Lodz regional government. From this year forwards, industries are eligible to submit either EUAAs or EUAs for compliance since both types have the same specifics. Fungibility has caused the prices to converge as there is no more separation between the instruments.
German power prices are up by 2 EUR since last week, with the front year contract trading at 65.80 EUR/MWh. API2 coal prices are up by 1.45 USD since last week, with the Cal22 contract trading at 82.60 USD/tonne. EUR/USD is unchanged since last week and is currently trading at 1.2200.
Price development of EUA Dec2020 futures contract