Isra-Mart srl : BarCap trims H2 2010 carbon price forecasts

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Barclays Capital trimmed its outlook for European Union carbon prices in the second half of 2010 by one euro to 15 euros ($19.68) a tonne on Thursday, but raised its longer-term forecast to between 40-70 euros by 2020.

Trevor Sikorski, an analyst at the investment arm of Barclays Bank, cited a recent decline in permit prices mitigated by a lack of buying support from utilities for the lowered H2-2010 estimate, but left his 2011 price target of 20 euros unchanged.

He raised his view for EU carbon prices, or EUAs, in the third phase of the bloc's Emissions Trading Scheme (2013-2020) by 5 euros to 40 euros, assuming the EU maintains its current 2020 emissions cut target of 20 percent below 1990 levels.

The EU's executive, currently weighing a move up to a 30 percent target, will likely deliver its verdict in the autumn.

"(Under) a 30 percent reduction target ... EUA prices will hit 70 euros a tonne by 2020," Sikorski said in a note.

EUA futures for delivery in December, trading on the European Climate Exchange, were up 4 cents to 14.37 euros a tonne on Wednesday afternoon.

The benchmark EUA futures fell to a 4-month low of 13.34 euros in late July and finished the month down 7.3 percent.

Following a 24 percent rally in EUA prices in April, Sikorski on May 19 raised his H2-2010 EUA forecast to 16 euros, up from a 15 euro estimate made in April.

"The market continues to be driven by the twin features of utility buying and industrial sales," he said.

Recession-hit industrial firms like steel and cement producers, many of which were given extra EUAs to help them compete internationally, have in the past 18 months sold their surplus in an effort to raise cash.

BarCap said that although EU steel output in the first six months of 2010 was up 44 percent over the same period last year, cement, lime and oil refining companies saw production drop by 7 percent year over year.

"The recovery in industrial production is uneven between sectors and, with some sectors and countries still suffering difficult times, monetizing EUAs will remain attractive to some participants," Sikorski said, attributing the recent EUA price weakness to industrial sales and government permit auctions.

He added that utilities would support prices if they dropped by enough: "Experience now suggests that the new level for opportunistic buying by utilities is around 13.50 euros."

He estimated utilities forward selling power beyond 2012 will need to buy another 30-40 million EUAs before the end of the year, but said most of this demand will be offset by the 36 million more EUAs expected to come to market via upcoming government permit auctions.

Sikorski also lowered his estimate for U.N.-approved Certified Emissions Reduction (CER) prices by one euro, predicting the Dec-10 futures would average 12.50 euros in the second half of 2010.