SO2 prices resumed their upward climb this week, breaking the $400 mark for the first time on June 23 after a $13 jump. Spot prices finished the week at $410 on very light trading.
In less than two months, prices for SO2 allowances have jumped more than $100, yet some traders are still digesting the change to figure out what will happen next, with others staying out of the market until it potentially comes back down.
Prices have continued higher despite warnings, such as PIRA Energy’s report in May, which forecast that a correction was imminent as prices would be hard to sustain above $350/ton. Some utility traders still expect a correction soon, as most of the trades have been between
speculators rather than natural buyers. A trader for one Midwest utility said he is staying out of the market right now. “At some point, [speculators] are going to want to take some profits and it’s going to fall,” the trader said.
However, another firm, PA Consulting Group, believes current prices are within an appropriate range, with a ceiling in the low $400s. Unlike PIRA, PA pegs the price of emissions controls at a higher level, helping allowances remain attractive. In addition, a tight supply of so-called compliance coal, or low-sulfur coal, is forcing generators to use coal that produces higher emissions. As a result, the run-up in allowance prices is closely tracking coal, said Jerry Eyster, managing consultant for PA Consulting.
The firm’s modeling also shows that the anticipated SO2 limit from EPA’s forthcoming Clean Air Interstate Rule (CAIR) is now having an effect. Utilities are more certain that CAIR’s limits and allowance rules, which will allow them to hold on to a larger number of allowances than previously thought, will take effect in the form currently being discussed by federal regulators.
Despite the late-week surge, The Argus Air Daily weekly price index, the mean of each day’s closing price, rose only $4 to $401.40 this week.
