U.N. carbon credits fell 4 percent on Tuesday and could fall further as heavy issuance continues to weigh on prices but they are not likely to hit an all-time low of 7.15 euros ($9.76) a tonne this week, traders and analysts told Reuters.
Benchmark prices for certified emissions reductions (CERs) fell as low as 7.54 euros in afternoon trade, before recovering slightly to 7.57 euros at 1540 GMT.
They have lost more than 40 percent of their value since the start of June, touching a 32-month low of 7.32 euros on October 4.
The market has been pressured by an abundance of supply, coupled with slowing economic growth prospects amid debt crises in the United States and European Union.
“This week, I don’t expect prices to fall to 7.15 but they could go to any value (…),” said Emmanuel Fages, carbon analyst at Societe Generale/orbeo.
“I don’t expect them to fall to 5 before 2013 but they should go down gradually in the coming year.”
Other analysts said CER prices have probably already hit a floor unless there is an unexpected surge in issuance of CERs or other U.N.-backed credits, such as emissions reduction units.
Nomisma Energia’s Matteo Mazzoni said: “7.50 euros is already an extremely low level for secondary CERs. For the last couple of weeks, the benchmark has tested this level, rebounding all the time above 7.80.”
There could be a similar pattern this week as there is room for EU carbon prices to rise, and CERs could follow to a lesser extent.
“The secondary market for CERs has already hit the bottom of the barrel. Primary pre-registered CERs are now traded at 7.60 euros. Just Chinese CERs are competitive at these prices,” he added.
Supply
A record 254 million CERs have been awarded this year so far, well above the 132 million awarded in the whole of 2010 and 123 million in 2009.
Traders have attributed the increased volume of credits to rule changes and improved efficiency in the U.N.’s Clean Development Mechanism (CDM), which issues the credits.
They do not see CER supply decreasing any time soon, even though new issuance has slowed over the past few weeks.
“We are not sure about demand, so we can expect them (CER prices) to go lower,” said a trader at a financial institution.
The trader added that compliance buyers were more likely to be interested in spot CERs, which is why prompt prices are trading at a premium to the December deliveries.
He pegged strong technical support for the front-year CER contract at 7.30 euros.
However, this trader and others said front-year CER prices were unlikely to test new lows unless benchmark EU carbon prices fell below 10 euros, as the price difference between the two contracts is hovering around 3 euros.
The front-year contract for EU Allowances (EUAs) was trading around 10.62 euros a tonne on Tuesday.
CER demand has been weakened by an EU Commission decision to ban the use of credits from certain industrial gas projects for use in its emissions trading scheme from May 2013 due to criticism of their environmental integrity.
“The clock is running against CERs because at least 50 percent of them are from industrial gas projects,” said Fages, referring a total of 750 million CERs awarded since the U.N.’s CDM began in 2005.
“Due to the decision to ban (them), people will have to sell them before they are worth zero,” he added.
