BUY OR SELL-EU carbon prices set to rebound or fall further?

By Michael Szabo

LONDON, July 29 (Reuters) - European carbon permit prices have tumbled by over 10 percent in July, hitting four-month lows this week due to a mix of weaker German power and UK gas prices, speculative selling and nonexistent utility buying.

Benchmark prices for the permits, called European Union Allowances (EUAs), have since come off the 13.34 euro low hit on Tuesday, but at 13.76 euros at Wednesday's close, they are still down 18 percent from 2010 highs of near 17 euros hit on May 4. Observers said a sudden flurry of short selling by financial institutions and speculators following a fall in German power prices [EL/DE] in late June triggered EUA stop-loss orders, causing the Dec-10 futures CFI2Zc1 to plummet by nearly one euro between July 5 and 8.

The further decline was exacerbated by worries over the European economy, a plunge in UK gas prices and an absence of EUA buying support from utilities, the main buyers in the EU's Emissions Trading Scheme.

Traders said utilities had slowed selling forward power, meaning they had no need to hedge those sales by buying EUAs, a trend that helped push prices up to April's 18-month high.

Although Dec-10 prices have fallen sharply, they are still some way from the 2010 low of 12.25 euros touched in early January.

Are EUA prices poised to rebound or could we see a further fall? Reuters asked four analysts for their views:

* Marius Frunza, head of structuring at Sagacarbon