EU Market: EUAs slip from 3-year high to post scant weekly rise

Published 19:17 on October 16, 2015  /  Last updated at 19:17 on October 16, 2015  /  EMEA, EU ETS  /  No Comments

EU carbon prices dipped on Friday as traders took profits following the week’s climb to its highest level for three years.

EU carbon dipped on Friday as traders took profits after prices climbed to their highest level for three years.

The benchmark Dec-15 EUA contract ended down 4 cents at €8.39, near the middle of its €8.35-8.45 range in a thinly-traded session that saw 9.3 million units change hands.

The front-year futures rose just 4 cents week-on-week after several sessions of technically-driven trading that involved repeated testing of a €8.40 resistance level. They broke the psychologically-important €8.50 mark on Thursday to briefly reach €8.51, the highest since Nov. 2012.

“People have taken the opportunity to cash in on the three-year high, however I still think the price has a lot more room to grow into for the rest of the year,” said one particularly bullish trader.

“I really don’t see why we won’t be touching €9 in the near future,” he said, predicting that steady buying from utilities would help push prices higher than the year-end €8.60 average price predicted in a recent analyst poll.

In contrast to most energy and commodity prices, carbon is up by more than 14% so far in 2015, gains which most market participants attribute to supply-curbing Backloading and assurance that more EUA surplus will be withheld later this decade by the MSR.

German clean dark spreads were little changed as weaker dollar-denominated coal prices were offset by a weaker euro.

The cal-2017 and 2018 spreads were up 1.7% and 2.8% respectively week-on-week, giving a slightly bullish signal for carbon.

POLICY IN VIEW

There are few developments expected on the policy front next week, although some member states may give their initial reactions to the post-2020 ETS reform proposal ahead of an Oct. 26 Environment Council.

This will come a day after Poland’s general election that looks to be won by the poll-leading and pro-coal PiS party, which holds an even stronger opposition to ambitious EU climate policy than the incumbent Civic Platform. See our analysis here.

AUCTIONS MIXED

Friday’s Germany auction of 3.198m spot EUAs cleared one cent above the secondary market with the week’s highest bid-to-cover ratio of 3.77.

Dec-15 prices were close to the day’s low just before the auction’s bidding window closed at 0900 GMT and nudged upwards afterwards.

The sale capped a mixed week of government sales, with the four previous auctions attracting bid coverage well below the year’s 3.1 average.

Monday and Wednesday’s sales cleared well beneath prevailing Dec-15 prices ICE prices – 5 and 6 cents respectively – while Thursday’s sale featured a rare clearance above benchmark futures.

Auction supply will ease slightly next week without the UK’s fortnightly sale, dropping to 11.9 million from this week’s 15.1 million.

Below are this past week’s EUA auction results, featuring the clearing price, distance to front-year EUA futures in the secondary market, and bid-to-cover ratio:

12/10/2015 EU 2,918,000 €8.26 -0.05 2.91
13/10/2015 EU 2,198,000 €8.30 -0.02 3.62
14/10/2015 UK 3,123,000 €8.29 -0.06 4.69
15/10/2015 EU 2,198,000 €8.46 +0.01 4.13
16/10/2015 DE 3,198,000 €8.37 -0.01 3.93

And next week’s scheduled sales:

19/10/2015 EU 2,198,000
20/10/2015 EU 2,198,000
22/10/2015 EU 2,198,000
23/10/2015 DE 3,198,000

 

Implied EUA carry trade annual returns German clean dark spreads
Dec-15 Dec-16 Dec-17 Dec-18 Cal Yr Price Wk chg
Spot 0.741% 0.709% 1.036% 1.152% 2016 €4.50/MWh +0.02
Dec-15 0.715% 1.067% 1.174% 2017 €3.56/MWh +0.06
Dec-16 1.420% 1.414% 2018 €3.25/MWh +0.09
Dec-17 1.400% (based on 36% efficiency factor)
(does not include transaction costs)

 

By Ben Garside – ben@carbon-pulse.com

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