NZU carbon prices hit near 7-month high on strong demand; outlook cloudy ahead of Dec auction

New Zealand carbon prices hit a near seven-month high Oct. 3 on improved spot demand from buyers, while mixed expectations for the upcoming quarterly auction Dec. 4 led to an uncertain short-term price outlook, according to data from S&P Global Commodity Insights and market participants.

“[New Zealand Units] are trading up in the market further than I thought it would go, but surely it’s capped out at around these [mid-to-low NZ$60/mtCO2e] levels,” one NZU trader told Commodity Insights.

Platts assessed NZU at NZ$63.50/mtCO2e ($39.48/mtCO2e), up NZ$1.35/mtCO2e on the day, and was last assessed higher on March 19 at NZ$65/mtCO2e.

Participants are waiting to see if the final auction for 2024 in December goes through as that would provide a sense of market direction going into 2025, a second NZU trader based in Auckland said.

Auctions under the New Zealand Emissions Trading Scheme are held on a quarterly basis in which the bids have to be equal to or above the auction floor price set at NZ$64/tCO2e for 2024 as well as the confidential reserve price. The CRP is set by the government to prevent the sale of units significantly below spot market prices.

The March auction partially cleared with 2.97 million out of 3.525 million NZUs sold, while the previous two in June and September failed to clear on lack of high enough bids, thereby causing the unsold volumes to be rolled over to the following auctions. If all auctions in a year fail, the unsold units will be removed from the market permanently.

The secondary market prices have to be at least NZ$70/mtCO2e for the December auction to clear, but no one is determined to take it up so far, the first trader said.

On this note, the second trader said there would be further support to prices from 2025 onwards if the excess supply from the market gets “evaporated” if the December auction fails to attract competitive bids.

Amid this auction result uncertainty, the NZU price outlook and market direction for the final quarter of the year remain unclear amid divided expectations for the final auction as most market participants prefer staying on the sidelines until then, sources said.