New Zealand spot carbon slips on weak energy prices

March 16th, 201210:23 am @


WELLINGTON, March 16 |
Thu Mar 15, 2012 9:46pm EDT

WELLINGTON, March 16 (Reuters) – New Zealand carbon
prices slipped from last week, tracking sluggishness in the
European carbon market on weaker oil prices, but losses were
limited as many investors were wary of selling, given prices
hovered near the lowest in four weeks.

Spot permits under New Zealand’s emissions trading scheme,
or New Zealand units (NZUs), were seen trading at NZ$7.40
($6.06) on Friday, brokers said, down from NZ$7.90 a week ago.

Prices fell to NZ$7.55 on Thursday, the lowest in four
weeks, as the domestic market took its cue from weak European
carbon prices, which suffered this week as oil prices have
fallen nearly 2 percent.

The December contract of European green Certified Emissions
Reductions credits (CERs) fell 1.5 percent on Thursday to 3.98

“The international price has been the big driver of NZUs,”
said Ben Coleman, director of commodities, carbon and energy at
Westpac in Auckland.

But he added that thin liquidity and already low prices were
holding many investors back from selling aggressively.

“Foresters are keen to sit on their hands and wait for
better prices before coming back to the market to sell.”

Dwindling demand to sell has hemmed prices between NZ$7.50
and NZ$7.85 this week.

Market participants cited some demand to pick up cheap NZUs,
but overall, trade had come to a standstill, as emitters were
already flush with European carbon credits ahead of a looming
New Zealand deadline to surrender permits to offset their 2011

About 200,000 NZUs were traded over the week, according to
brokers, unchanged from a week ago.

Each permit represents a tonne of greenhouse gas emissions.
The scheme is designed to help curb output of emissions blamed
for causing global warming, and New Zealand permits the use of
European credits to offset emissions.

NZUs hit an all-time low around NZ$7.00 at the start of 2011
and have traded in a NZ$7.00-8.40 range since then. Prices have
remained on the backfoot since entering a downtrend in mid-2011
due to weakness in the European market.

But the market’s downside has been limited due to decreasing
demand to dump NZUs in favour of cheaper CERs, as the spread
between the two prices has diminished significantly.

The premium to hold NZU over CERs was at NZ$0.25 on Friday,
having narrowed from around NZ$1.30 earlier in the year.

Market participants say the narrowing in the spread has been
driven by carbon-emitting companies buying as many cheaper CERs
as they can to meet upcoming compliance targets at the lowest
cost possible.

Emitters covered by the New Zealand Emissions Trading Scheme
must report their 2011 emissions to the government at the end of
this month. By May 31 they must surrender permits equal to half
their 2011 emissions in order to meet their obligations.

Some analysts said a steadying in the euro/New Zealand
dollar exchange rate would limit big swings in NZU prices for
the moment.

The euro’s recovery from a life-time low versus the kiwi
following heavy selling earlier in the year has also eroded the
premium to hold domestic units. This has minimised demand to
sell NZUs for CERs to benefit from a stronger kiwi.

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(Reporting by Stian Reklev of Point Carbon News and Naomi
Tajitsu in WELLINGTON; Editing by Chris Lewis)

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