NZUs moving higher.......

Spot NZUs are looking to surge higher as the market continues to climb and offers fall away. We traded 10,000 NZUs at $4.45 in the face of good offers at $4.50 only to see all the selling at that level disappear. The bids continue to queue and there isn’t a lot of selling in this market until we hit $4.70 and then its only 50k. The difference with this rally to previous ones that have met resistance is two-fold. (1) There are more buyers now coming into the market than previously and (2) the Post -1989 arbitragers aren’t present anymore meaning the steady stream of selling that provided has gone.

There are enough units in the registry to satisfy demand on current weak settings – just not at these prices. Most major forest owners have no inclination to sell under $7 and log prices have stabilised which means they are under no pressure to sell. Any changes to our ETS settings – i.e. the 1 for 2 goes then demand will accelerate.

Our view is the market is short in 2015 – meaning many emitters don’t have enough NZUs for all their 2015 requirements. In addition – there are hundreds of buyers below the liable emitters who buy NZUs to pass up that will enter this market soon and simply procure NZUs at any price.

Getting long NZUs at current prices below $5 is prudent hedging. Political & regulatory risks are increasing.