NZUs poised for upside as auction loomsFriday 25 Oct 2024 Opinion Piece: Nigel Brunel, Managing Director, Marex New ZealandSpot NZUs continue to grind along and whilst there are quite good volumes still going through the market – it has been effectively a sideways market for over a month, trading a NZ$2 range between NZ$61.50 and NZ$63.50. It’s just over 5 weeks to the final auction of the year – where there is 11 million NZUs up for grabs at NZ$64. It’s likely we will see a partial clearance, given concerns are building that from 2025 we are starting to see a structural deficit in supply. Entities may also have concerns about being able to secure sufficient volumes in the years ahead. Some entities have demand that is greater or equal to the entire auction volume for 2025, and beyond. There is almost twice as much volume in this auction than all of 2025. Let’s also not forget that next year the auction floor is NZ$68 – so this auction is good value in relative terms at NZ$64 and we expect this to be a driver.  We would be surprised to see the entire auction clear but odds on we may get a third away. How will the price react? Our view is that there is NZ$5 to NZ$6 of upside on a partial clearance of around 3 million. All unsold auction volume is cancelled. There could be a short-term negative price reaction if it totally cleared (unlikely) because some may view that supply entering the market will dampen demand, but our view is that it would be short term and a buying opportunity. Our rationale is reasonably simple:
Chart credit: Carbon News  |
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