EU Allowances inched slightly higher on Monday, shrugging off falls in energy prices as traders awaited details of governmental MSR talks that have yet to produce decisive breakthrough announcements.
The Dec-15 EUA closed up 3 cents on ICE at €6.54, at the higher end of the day’s €6.41-58 trading range to climb further from the year-low of €6.28 reached last Friday morning.
The increase came despite oil prices shedding as much as 4% to a six-year low amid rising global inventories and improved prospects of sanctions being lifted on producer Iran.
This helped push baseload front-year German power prices down 1% to €31.80/MWh on EEX. Coal for EU next-year delivery was down 1.6% at $57.50 per tonne.
Traders said carbon showed little correlation to power prices as MSR-related news and the effect of factories selling their newly-acquired free allocations could potentially outweigh any price swing.
“Everyone expected some MSR news, you notice people waiting,” said one trader.
Officials from all EU nations met in Brussels for MSR talks to ease a deadlock between mainly western governments pushing for a 2017 start and a potentially blocking minority of eastern governments sticking to the originally proposed 2021 introduction.
“There were no major breakthroughs expected today, the meeting was to discuss the proposal we circulated last week. The intention is still to request a mandate to negotiate on March 25 and to start the trilogues on March 30,” said an official at the Latvian presidency.
A qualified majority of EU nations need to agree on a position to begin the trilogue talks with the EU Parliament and Commission on the final MSR text.
Analysts at Thomson Reuters Point Carbon said they considered Latvia’s proposal to be merely an attempt to kickstart negotiations and expected the country to introduce a more bullish compromise later this week.
Consultancy Redshaw Advisors said that following the price plunge after Latvia’s proposal emerged last week there was little potential for the MSR process to yield news that could move prices lower.
“MSR bad news is probably out of the way so expect further revelations to be neutral or bullish,” they said in a note to clients, adding that the downside was more likely to come from selling by factories receiving their free annual allocation of EUAs.
Traders have reported lighter selling by these industrials than a year ago but are wary that the small amount of outstanding allocations could weigh on the market.
The European Commission is due to publish an update on the progress of the allocations on Tuesday.
By Ben Garside – ben@carbon-pulse.com
