EU CO2 falls 10 pct, record volume in sell-off

23-Jun-2011

LONDON, June 23 (Reuters) - European Union carbon prices
dropped over 10 percent on Thursday, as jitters over political
tinkering to a battered scheme hit the start of a seasonal
summer slump in buying, driving record volumes in a sell-off.
Coal plants were the main winners, as power contracts traded
sideways while carbon costs plunged, in a falling picture which
traders said recalled recession in 2008 and 2009.
Some traders said the sell-off raised the spectre of an
infamous collapse when prices fell to near zero in 2007 because
of an over-supply of permits, called EU allowances (EUAs).
But most players saw prices no lower than 13 euros, compared
with Thursday's price of 13.6 euros, down 25 percent from the
2011 high set just three weeks ago.
"We are not in the situation where we will go as low as we
did in 2009," said Isabelle Curien, analyst at Deutsche Bank,
referring to February 2009 when prices slumped to 8 euros.
Curien expected the falling price to entice utilities to buy
again, to offset against their carbon emissions from generating
power from burning coal, especially given Germany's plans to
phase out low-carbon nuclear power.
"If we take into account ageing power utilities in the
coming months and years we will have a change in pattern."
But some traders painted a more bearish picture.
"There is a real fear in the market that if Greece defaults,
we'll see a zero carbon price, and there are loads of guys
exiting the carbon markets today," one said.
Another underlined the importance of the wider macroeconomic
view: "Greece is playing the role of Lehmann, and having seen
that happen before people don't want length. I think the macro
picture is very important."
The EU's emissions trading scheme caps the collective carbon
emissions of about 11,000 factories and power plants, and has
endured a slew of damaging scandals from its launch in 2005,
including a long-running glut of permits which is now expected
to continue through 2014.
That fundamental over-supply reflected industrial lobbying
at the start, as they tried to limit their costs, and more
recently the financial crisis which cut industry output,
pollution and EUA demand.
The biggest cause of the present sell-off was seen as
concern over an additional glut, because of an EU plan to bring
foward sales of 300 million extra EUAs over the next 18 months
to raise funds for low-carbon projects. That compares with a
normal annual allocation of 2 billion.
The worry has combined with a seasonal summer slump which
usually starts in earnest in July. "There is a real rout of
funds getting out of all their long positions in the carbon
market today," said a third trader in London.
By 12.47 GMT benchmark contracts had traded in record
volumes on the main emissions exchange, ICE, at 35,020 lots or
more than 35 million EUAs. Prices were down 8.12 percent at
13.58 euros a tonne <CFI2ZZ1> having touched a low of 13.25
euros mid-morning.