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orbeo and Société Générale Commodity research team provide you:

• - regular (e.g. monthly) information, briefs and analyses on CER market and its evolution;
• - instant direct access to analysts at any time and update on price forecasts;
• - designing and proposing a suitable and value maximizing strategy for managing and trading of CER’s: ORBEO trading desk will share its view on its own CER sale strategy and propose adapted timing / volume of market operations adapted to SOCAR’s flow of CER;
• - access to latest market instruments on emission markets (e.g., options, swaps, cross-commodity deals).

Weekly market analysis

SG orbeo Carbon Drivers - July 19th, 2010

Moderately bullish, against all odds

• - As expected carbon prices decreased last week: Dec10 EUA moved from €14.65 /t to €14.26 /t with a trough below €14 /t mid-week. Contrarily to our expectations however, CER regained some ground on EUA and the Dec10 CER-EUA spread now stands at €-2.2 /t (from €2.45 /t at the end of the previous week)

• - The absence of regular buyers, more than heavy selling, explains this erosion. Dec10 EUA kept afloat only thanks to heavy buying in the last hours on Wednesday and Thursday. However, such intervention from (most probably) utilities might have been enough to signal that opportunistic purchase will happen around €14 /t, and could moderate short-selling temptations

• - For the coming week, despite a probably worried macro environment (bad European indicators expected) we actually anticipate a rebound, on a combination of factors: a possible bounce of power prices, currently soft-landing – we also expect gas to find some support after a rapid fall; bullish technical indicators (among other stochastics, 5-day moving average); the consequences of the EC communication last week on late auctioning. We however do not anticipate strong momentum in the summer market, and for us the upside is limited to €14.7 /t on Dec10 EUA. CER should follow, with for us a widening of the spread.

SG orbeo Carbon Specials - June 11th, 2010

We revise EUA price forecast up by €2 /t for 2011. But downside risk exists

• - Carbon prices took off in April, the Dec10 EUA contract gaining more than 25% over that month. This strong recovery was fuelled by utilities’ hedging needs, sentiment in the market dominated by bullish Phase III news and an energy prices rally. Carbon prices consolidated below €15 /t in May, weighed down by eurozone debt concerns. Since then prices have regained some height above €15.5 /t.

• - Energy prices are for us not likely to play as a major support for carbon prices during Q3 10. Gas prices, although currently at surprisingly high levels, could ease off a bit during summer, while we expect coal to rise until the end of 2010. As a result, the clean dark spread ought to retrace below the clean spark spread.

• - The eurozone debt crisis outburst in Europe made us consider a scenario where sovereign risk would spill over to the financial sector and finally to the real economy, pulling Europe back into recession. If that scenario were to materialise, our estimates show a 258 Mt emission decrease compared to our central scenario.

• - Our price outlook is still bullish for the coming quarters, in line with the SG central scenario of economic recovery. Looking at historical seasonal price movements, another price increase period could start in July. We have not modified our short-term price forecasts and still see EUA spot at €17.0 /t for Q3 10 and €19 /t for Q4 10. We have, however, modified our CER forecasts to account for a progressive widening of the CER-EUA spread. We thus see CER trade at €13.5 /t in Q3 10 and €15 /t in Q4 10, with a CER-EUA spread at €-4 /t at the end of 2010.

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