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Market Dynamics Report

April 2017: Volumes down across the board after a strong March, YTD Power focus highlighting declines in French Power.

The high volumes seen in March were not a sign of things to come. April starts the second quarter with 5.879m total month contracts traded, down 29.6% over Mar-17 and the lowest number of monthly contracts traded since Sep-15. YTD total monthly contracts traded were 28.358m, down 14% vs. 2016.

Power volumes are down across the board whether on MoM, YTD or a YoY comparison basis. MoM saw all commodities see double figure drops; German Power saw the smallest percentage but largest nominal decline, down 19% (126 TWh) from Mar-17 to 542 TWh. YTD UK Power has dropped 44 TWh (26%) vs. YTD 2016 while YoY saw French Power down 99 TWh (64%) vs. Apr-16. Market shares remained consistent with the only notable change being Spanish Power who saw a 9% shift to broker bilateral, at the cost of the cleared market.

The YTD trend of 2017 Power has been one of lower traded volume and declining prices. Across the first three months of 2016, volumes have been consistently higher. This trend continued in April as low monthly volumes pushed YTD to close the month 17% (762 TWh) down over 2016. 

The interesting point is what markets are driving the decline. German Power, which accounts for over half of all Power traded, only accounted for 5% of the total YTD decline. French Power was the largest contributor, down 55% vs. 2016. This is in stark contrast to the April 2016 Euro Commodities Report where French Power had seen record volumes with the cleared market being the big winner. Although the French Power cleared market share has remained strong YTD, 42% vs. 39% 2016, this is the lowest YTD volumes seen since 2013.

 Volumes are not the only factor to see declines; Power prices are down across the board. French Power is leading the way with front-month baseload prices down 44% since January. Meanwhile, German, UK and Italian Power front-month baseload prices have declined 35%, 27% and 18% respectively.

Gas follows much the same story but with one key difference; Austrian VTP volumes are up 5% (7 TWh) YTD vs. 2016. High volumes in March are the driver for the YTD growth as April only saw 26 TWh traded, down 55% MoM. TTF was another commodity affected by strong March volumes posting the highest nominal MoM decline, down 831 TWh vs. Mar-17. TTF volume was 113% of NBP in Apr-17 maintaining its dominance in a lower volume environment. NBP saw 1,327 TWh traded in Apr-17 down 21% MoM and down 18% YTD. PSV saw the highest percentage decline both MoM, down 61% and YoY, down 43%.

No change in theme when it comes to Coal. Markets have fallen from the volumes seen in 2016 with API2 dropping 52% YTD vs. 2016 and 63% YoY (vs. Apr-16). API4 has followed suit, down 69% YTD vs. 2016 and 63% YoY (vs. Apr-16). What’s interesting about Coal market is that prices have remain relatively strong even in the face of slowing demand, API2 front month prices are 28% up over Apr-16. The market dynamics shift towards broker bilateral and exchanged execution has remain in 2017 as API2 booked 66% broker cleared, down from 96% in Apr-16. Exchange execution is the main winner accounting for 22% of traded volume in Apr-17, up from 4% in Apr-16.

2017 has definitely defined itself as a new year in terms of market trends; volumes and prices have largely declined, while the market dynamics remain relatively unchanged. What factors are driving the decline in volumes? Can the volume decline be explained by fundamentals; warmer weather and reduced factors affecting supply? Alternatively, is the impending MiFID II regulation creating a caution in the market? Only time will tell. 

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