July 2016 saw volumes across the Euro Commodity markets drop 29% vs. June 2016. Total monthly contracts traded of 5.922m is the lowest monthly volume we have seen in 2016. Despite this, volumes YTD continue to show strong growth, with 54.13m monthly contracts traded up 20% vs. the same period last year. What’s behind this month’s significant drop in volume? Is it the full month impact of the Brexit vote? A reaction to the start of the measurement period for MiFID 2? Or a usual seasonal drop related to summer’s warmer weather and holiday season?
All commodity groupings contributed to the drop in volume, with Euro Power posting the largest MoM percentage drop at 37%, followed closely by Coal at 36%, then Euro Gas and UK Gas both down 28%. Emissions was down 20% and UK Power was the only grouping with single digit percentage decline at 6% MoM. Meanwhile prices showed the opposite trend, with all headline prices up MoM bar EUAs.
Euro Power continues the story of declining volumes with Nordic Power seeing the largest MoM decline of 52% to 80 TWh. German Power saw a 37% decline over June, and contributed to 66% of the total 426 TWh decline in Euro Power. YTD, Jan-Jul 2016, has seen large growth with Spanish Power being the star performer with 45% higher volume and Italian Power, the only followed commodity to not make it into double figures, posting 9% growth over the same period last year.
All gas commodities included in the Euro Gas grouping except for Zeebrugge recorded volumes down MoM. TTF was down 31% MoM to 1,447 TWh, the largest contributor to the Euro Gas grouping decline. NBP was down 28% to 1,251 TWh, resulting in TTF’s continuation as the largest Euro Commodity covered by this report for the second month in a row, at 116% of NBP. YTD TTF is 106% of NBP volume – with seven months of 2016 under our belts it looks like TTF’s pole position is here to stay. NCG saw the largest percentage decline with a 32% drop from 162 TWh in June to 111 TWh in July. To further highlight the paradoxical MoM change, ZEE, the only venue to see a decline in June, is now the only venue to see an increase, posting a 10% higher volume over June.
Overall market structure was little changed for the month, with broker bilateral share steady at 56% and the cleared market shifting 2% from broker cleared to exchange executed. The movement within commodity groupings was mixed, but one of note stuck out as exchange executions in Coal reached their highest ever market share and absolute volume traded. This is a continuation of a trend first seen last month, where exchange executions were 6% of the total market for the month, vs. an average of 2% over 2015. This month we see exchange executions market share move into double digits at 17% of the Coal market for July. This has pushed YTD exchange execution market share up to 5% - the highest we have seen YTD since our records start. The movement is occurring in both the API2 and API4 contracts, posting exchange execution market shares for July of 18% and 8% respectively. We are also seeing an increase in broker bilateral market share in Coal, at 5% YTD vs. 0% for the same period last year. The broker cleared market is getting squeezed on both sides, although due to increasing total market volumes the impact in volume terms is not felt, with YTD 2016 broker cleared volumes up 26% vs. YTD 2015. The backdrop to this volume and market structure shift is increasing prices, seemingly disconnected to fundamentals with API2 prices increasing 28% since the end of 2015. The coal market continues to be fascinating to observe through the normally quiet summer period.
High Level Market Summary
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