New Zealand carbon prices hit a two-month high this week, extending gains as ongoing speculation of tighter liquidity in the European carbon market was expected to bolster the New Zealand market in the longer term.
New Zealand permits for spot delivery (NZUs) rose as high as NZ$7.00, traders said, their strongest since late April, while light selling by forestry-related participants around that level prevented any further gains.
NZUs traded in a NZ$6.60-7.00 range this week and closed at NZ$6.95 on Thursday, up 35 cents on the previous week.
Prices pulled further away from NZ$5.95 hit earlier this month, around the lowest on record according to Point Carbon data dating back to July 2010.
NZUs are on course for a 14 percent rise this month, tracking broad gains in the European market ahead of a European Commission plan due next month that could delay sales of up to 1.2 billion allowances and push prices higher.
“Given that in Europe they’re about to restrict supply, the market’s going to be relatively tight over the next six to 12 months,” said a trader in Wellington, adding that this would support the New Zealand market.
But he added that further, big gains were unlikely as investors await details on proposed changes to the domestic carbon market, which may affect the number of permits domestic emitters must hold.
“There’s not a lot of clarity on the government’s carbon policy beyond 2012. This is certainly preventing the market from thinking too far ahead, from a purchasing perspective… it’s going to keep people very conservative,” he said.
Market participants said around 115,000 NZU contracts changed hands in the past week, more than the previous week’s turnover of 65,000 units but still much lower than during the first half of the month.
NZUs have been tracking broad gains in the European carbon market this month, but losses in UN-backed Certified Emissions Reductions (CERs) this week have capped a further upside in domestic prices.
Higher CER prices have limited the incentive for New Zealand emitters to purchase the credits to meet their targets rather than buying government-issued domestic permits.
Some traders said higher underlying CER prices were also offsetting any NZU boost from a slide in the euro versus the New Zealand dollar, which fell to a four-month low around NZ$1.5710 and approached a lifetime low around NZ$1.5575.
Overall, market participants said they had little appetite for NZUs at the moment, given that firms are not required to surrender permits to the New Zealand government to cover their 2012 emissions until May 31 next year.
The government has signaled it could make a number of changes to the market, including limiting access to UN offsets and capping the total amount of emissions that scheme participants are allowed to release into the atmosphere.
The Ministry of Environment is currently contemplating public comments on the proposals, and could release draft amendments within the next few weeks.
