October 24, 2011 / 3:23 PM / 8 years ago

Commerzbank cuts EU CO2 price forecasts

* Commerzbank says slowdown carries risk of sharp emissions drop

* No large EUA price rise is expected for 2012, it says

* Barclays Capital says CER prices could hit 5 euros/t

LONDON, Oct 24 (Reuters) - Commerzbank lowered its year-end and 2012 forecasts for prices of EU carbon permits on Monday due to slowing growth prospects and a glut of supply in the EU emissions trading scheme (ETS).

The Frankfurt-headquartered bank predicted prices for carbon permits called EU Allowances (EUAs) at 12 euros ($16.68) per tonne at the end of 2011, down two euros from the bank’s previous estimate made at the end of August, Eugen Weinberg, head of commodity research, told Reuters.

The bank’s analysts also slashed their estimate for end-2012 EUA prices to 15.5 euros from 16.5 euros, he said, mainly a result of growth concerns amid the euro zone’s debt crisis.

The benchmark EUA contract CFI2Zc1 was trading around 10.35 euros on Monday.

Carbon prices have fallen by more than 40 percent since the end of May, touching a 31-month low of 9.82 euros on Oct. 4.

“The economic slowdown does indeed carry the risk of a sharp drop in emissions, as the economic crisis of 2008/2009 demonstrated,” Commerzbank said in a research note.

It also said the over-supplied market will be further pressured by the expected start of EUA sales later this year from a post-2012 reserve for new carbon market entrants amounting to 300 million permits.

However, Commerzbank said a long-term demand driver will be the entry of the aviation sector into the EU’s cap-and-trade scheme from January 2012, as many airlines will need to buy permits.

“We therefore expect only a moderate rise in EUA prices to 12 euros per tonne by the end of the year. No large price rise is expected for next year either,” the note said.

Other analysts have also recently lowered their price forecasts for carbon permits .

The heavy issuance of carbon credits in the U.N.-backed emission offset market, coupled with EU growth concerns, has depressed benchmark offset prices CEREZc1 to a record low earlier this month, Commerzbank said.

Participants in the EU cap-and-trade scheme are the main buyers of so-called Certified Emission Reductions (CERs), which are awarded to U.N. registered emission-reduction projects in developing nations.

In a separate research note on Monday, analysts at Barclays Capital said CER price direction hinges largely on the EUA market, particularly given EU rule changes for using the offsets in 2013.

“If EUAs fall to 8 euros/t and CER issuance remains healthy, there would be pressure on those credits to head below the 5 euro/t level,” the BarCap analysts wrote.

European leaders have agreed to ban the use of CERs derived from certain industrial gas offset projects from May 1, 2013.

These CER projects accounted for 54 percent of issuance this year, according to BarCap. ($1 = 0.720 Euros) (Reporting by Jeff Coelho; Editing by Nina Chestney and Anthony Barker)

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