Isra-Mart srl : BUY OR SELL-Where do EU carbon prices go from here?

www.isra-mart.com
Isra-Mart srl news:

The price of European carbon permits have risen around 10 percent this month after political unrest in the Middle East, Japan's earthquake and Germany's decision to shut down old nuclear capacity.

EUAs for delivery in December 2010 CFI2Zc1 peaked at 17.75 euros a tonne on March 16 -- their highest level since November 2008 -- triggered by a nuclear crisis in Japan and a German government move to shut a third of its nuclear capacity.

After retreating to below 17 euros, prices hit an eight-day high of 17.35 euros in early trade on Monday, after a Green Party victory in Germany's state elections suggested that Germany would rely more heavily on coal plants, thereby pushing up emissions.

Several traders and analysts see prices gaining more momentum this week, before shedding a euro or two in the spring due to reduced power demand and generation.

"A new upward trend seems to be on the horizon," said Matteo Mazzoni, carbon analyst at Italy's Nomisma Energia.

The German election outcome, an increase in spot trading and the release of European Union 2010 verified emissions data could drive carbon prices higher this week, Mazzoni said.

BUY

After Sunday's election, the Greens, which secured the second-largest number of votes, are widely expected to form a coalition with the socialist party, which could lead to the permanent shut down of 7-8 gigawatts of nuclear capacity.

"That means around 70 million tonnes of extra carbon dioxide will be emitted and carbon is up on this prospect for now," said Emmanuel Fages at Societe Generale/orbeo.

Spot trade is also likely to increase as more national EU emissions registries reopen. [ID:nLDE72R0VQ]

Any heightened trading activity could help carbon's upward momentum.

However, prices would have to break through the 17.50 euro level to lead to higher gains, traders said.

The EU Commission's release of verified emissions data for 2010 on Friday could help fuel that rise. Analysts expect the bloc's emissions to have risen by 2-4 percent last year.

If the rise is stronger and the market remains in surplus of EUAs, it could help carbon break through 17.50 euros towards the next key level of 18.60, said OTC Europe's Brett Genus.

But traders will be monitoring technical factors like changes in open interest to gauge if prices are likely to slip again.

Any resulting dips in price would be an opportunity to buy, Genus said.

SELL

EU emissions data is unlikely to affect prices, according to Barclays Capital analyst Trevor Sikorski.

"The market is likely to be neither shaken nor stirred by Friday's numbers as the forecast balance for the phase is long some 450 million tonnes of EUAs -- and market pricing already reflects this balance. It would take something outside the expected increase of 2-4 percent to be a surprise," he said.

More long-term gains will much depend upon utilities' hedging patterns. Warmer weather in Spring will also reduce power and thereby EUA demand, which could temper gains.