Are NZUs Cheap?
NZUs finished the week lower and are now back towards the lower end of the range near NZ$50 (based on the Carbon News NZU Index below).?
Forest owners are still driving the bus and selling. Given they are often the ones needing the cash – that is no surprise.
This is still a range-trading market - $50 to $55 - which will stay in place until we know whether the government will change the auction floor and how they respond to the latest CCC advice on settings.
Our view remains – if you do not need the cash – notwithstanding the risk that the government lowers the auction floor price - then consider waiting for higher prices.
Hopefully – commonsense prevails and as I have noted in an earlier post – with no drastic changes I believe this market will right itself and head higher between now and the end of 2025 if we simply do nothing and allow confidence to return.
Here are some observations on the current market.
If the government does not lower the floor – prices will rise.
It is a near certainty that all the auctions will fail this year – there is no way I can see the market getting to $64 by September especially given this auction floor has become the cap. If that happens – we do not see December clearing either so that supply will not come to market.?
The floor moves to $68 in a few months which means the present gap from spot is going to get wider and I am not sure liable entities can get the required volume from the market at these levels, so they will continue to eat their bank.
领英推荐
Emissions are rising fast – this is due to the electricity situation with low lake levels and high thermal use. We have seen record ASX electricity futures prices above $500 MW/h.? The latest quarterly update from Genesis shows them using the 3rd Rankine for the first time since 2021!
Their coal stockpile is the lowest since mid-2021. So, the 33 million tonnes of surrender in 2023 is likely to become 35 million- plus in 2024 if what we are seeing in coal consumption bears out.
Forestry - the anecdotes I am hearing is we are not overplanting at present – due to the low price, lack of funds to plant and ETS uncertainty are all contributing to a negative sentiment. Given a lot of planting occurs on beef and sheep farms and marginal land – there is not a lot of money around to undertake that activity.
Taking all that into account?? - expect the registry to jettison between twenty million and thirty million by next June on a net basis – which could see us below 120 million - the lowest in several years.
Source EPA??
If that starts to bear out – and we will see the milestones heading towards that target about every two months from here – we should be nearer $60 to $65 coming into the first quarter 2025.
Again – if the government lowers the floor – all bets are off, and we will be in for a significant recalibration. All compliance carbon schemes carry regulatory risk but let us hope commonsense inside government prevails.
If they do not lower the floor – and you do not need the cash – then be patient – you will start to see higher prices as some of these fundamentals I have talked about bear out.
Yes I think NZUs are cheap - Buy NZUs!
Forester at Forest Management Ltd
7 个月Thanks Nigel. Even if we get a reduced floor price etc in the next few years the Government has reducing influence as the auction volumes drop - to zero in 2035. If we get a La Nina this summer and low inflows to southern lakes, already low, the 3 Rankins will be going an awful lot. Lots of moving parts here but IMHO forest planting will fall off the cliff from next year. Big implications for 2030 onwards as Gas volumes fall rapidly as well.