In the next month, we expect carbon prices to fall from current levels into the ~€80–85 /tCO2 range driven by stronger clean energy supply and subdued industrial output, both putting downward pressure on EUA demand and prices.
Strong renewables output expected this month
Forecasts suggest stronger than average windspeeds across Europe in the coming month, which will raise wind output from last month. Alongside a more balanced nuclear sector – as available capacity better matches seasonal requirements – greater solar capacity, sunnier weather and a stronger hydro outlook mean demand for fossil-based energy will be lower, thus lowering overall EUA demand in the next month.
Low power demand due to poor industrial output
Industrial output has failed to lift as expected and the outlook now looks subdued, as reflected in overall low power demand across the continent. Given low industrial output, prices in the steel sector, a key indicator for EUA demand, have fallen and production levels remain low, reducing demand for EUA from this source. We expect demand and profitability to lift a little next month, which should allow higher levels of production, but this will only lift EUA demand by ~0.5% at most.
Gas prices much lower but impact already priced in
Gas prices continued to fall last month and gas power now has a significant cost advantage over coal. However, the expected reversal of previous gas-to-coal switching has already largely occurred and we do not expect significant further shifts in the coming month so the impact has already been priced in.
If you want to hear more about our short-, medium- or long-term carbon price forecasts, please contact us, we’d be happy to talk.
The cut-off date of the data is 23 May 2023.
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CRU experts discussed the impact of the war in Ukraine on commodity markets in a recent webinar. Experts from all major commodity areas joined CRU’s Head of Economics and an energy specialist to discuss markets one month on from the invasion of Ukraine. The webinar is available to watch on-demand here.
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