Market Dynamics Report

MAY 14 2013

April 2013

Declining NBP Volumes, the continuing rise of Block Futures, volatile EUAs, and Euro Power price depression.

The interesting highlight this month is the drop in NBP volumes YTD 2013 vs. YTD 2012. We acknowledge that Jan – Mar 2012 were periods of record high volumes in NBP, related to colder weather and funds exiting the market. But we see the same effect with the two year comparison (YTD 2013 vs YTD 2011) - while of a smaller magnitude, this comparison shows a similar trend. European Energy's largest, most mature and liquid market is beginning to shrink. Has NBP topped out? Will growth in Continental Gas be large enough to balance out the drop in NBP? It was interesting to see market composition was relatively stable this month, with a small shift from the cleared market back to broker bilateral.

Block Futures activity is a continuing trend and on the tip of everyone's tongues this month, with several major international banks releasing guidance to the market stating their corporate stance on block futures vs. swaps. The two markets with global participants that we report on, Coal and Emissions, saw an increase in block futures activity. The total API2 & API4 cleared market that was executed as block futures was up in April vs March. In Emissions the cleared EUA & CER market that was executed as block futures was also up in April vs March. This is a shift that does not look like it is going to stop.

We also noticed the increase in EUA trading this month, with the negative vote on backloading EUAs taken 16 April sending the price into free fall and volumes sky high. Total volumes in EUAs were up MoM, YoY and YTD 2013 vs YTD 2012. The CER market continues to bounce along the bottom, with very low prices at the end of April and volumes that have fallen off a cliff, significantly down YTD 2013 vs YTD 2012.

European Power prices continue to drop, driven mainly by the decrease in Coal prices caused by the glut of supply on the market. Front month German Power prices are down MoM and YoY, while front month French Power prices are also down MoM and YoY. Volumes in German and French Power are also up YTD 2013 vs YTD 2012. Market composition for German Power saw a decrease in clearing, with broker bilateral gaining at the expense of both broker cleared and exchange executed. French Power saw the cleared market gain too last month.