Analysts slash CO2 price forecasts as slowdown seen - poll

LONDON Thu Dec 29, 2011 4:54pm GMT

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LONDON (Reuters) - Analysts have slashed their average price forecasts for European Union and U.N. carbon for next year and beyond as prospects of a slowing global economy and permit oversupply concerns persist, a Reuters poll showed on Thursday.

Analysts cut their average forecasts for prices of EU Allowances (EUAs) in the first half of 2012 by 30 percent to 9.33 euros ($12.08) a tonne versus a poll a month earlier.

Forecasts for EUA prices in the 2013-2020 trading period, known as the third phase, were reduced by nearly a third to 16.16 euros a tonne.

Carbon prices have lost about half their value this year, as the euro zone's fiscal crisis crippled demand in a market that many analysts say is oversupplied with hundreds of millions of EUAs and U.N.-backed credits.

The benchmark front-year contract, which hit a record low of 6.30 euros on December 14, was trading under 8 euros a tonne on Thursday.

Weak prices have prompted calls by some lawmakers and environmental groups to tackle the supply glut by withholding EUAs or tightening the annual cap on emissions in the third phase of the bloc's emissions trading scheme.

The European Parliament's environment committee on December 20 approved a proposal to withhold 1.4 billion permits from the 2013-2020 trading period, a decision that boosted carbon prices by some 20 percent on the day.

The vote "was a step in the right direction, but only a preliminary step," said Isabelle Curien, a carbon analyst at Deutsche Bank. "Nothing is secured yet," she said, noting the measure may never become law as it faces tougher resistance in further parliament votes next year.

Other analysts were also reluctant to factor in the prospect of some kind of supply intervention in their latest price forecasts.

"This forecast does not include any set-aside or tightening of the cap whatsoever," said Ingo Tschach, managing director at Tschach Solutions in Germany. "A final position decision on set-aside volumes would obviously increase our price forecasts."

Trevor Sikorski, the head of carbon research at Barclays Capital, said the willingness by some lawmakers to tighten supply could influence the incoming EU presidency to put the issue high on the agenda. Denmark takes over the rotating EU presidency on January 1.

"We believe the Danish presidency of the EU starting in January may just look at this as something achievable during its time at the helm," Sikorski said in a research note last week.

"Finally, a reason not just to be short," he added, referring to market participants who have been expecting carbon prices to fall in recent months.

Analysts also lowered forecasts for the average prices of U.N.-backed Certified Emission Reductions (CERs), with prices for the first half of 2012 lowered by 21 percent to 6.64 euros a tonne from last month's poll.

For the 2013-2020, analysts cut their CER price forecasts by 30 percent to 12.47 euros.

Front-year CERs were trading around 4.30 euros on Thursday.

(Reporting by Jeff Coelho; additional reporting by Michael Szabo; editing by Jason Neely)

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