EU carbon prices turned upwards on Tuesday to reverse three consecutive days of declines ahead of a pause in government auctions, and as speculators grew more confident that the market would hold its ground.
The Dec-15 EUA contract settled up 12 cents or 1.4% at €8.47 on ICE, near the top of the day’s €8.32-8.48 range and on enormous volume of 43.8 million units.
Some 34.4 million of that was done as block trades, and appeared to be linked to a spread trade with the opposite leg as the Mar-16s.
Traders said speculators had grown more confident about placing bullish bets because carbon appeared to be consolidating in a new, higher trading range. Since hitting a three-year peak of €8.51 last Thursday it has shed just a few cents, with today’s bottom trade the low point.
“There is positive sentiment in the market, (and) we are still in a bullish trend,” one trader said.
The positive view was echoed by analysts at Energy Aspects in a weekly report late on Monday.
“Despite the slight move down, the market has started to consolidate at these higher price levels. We think it is positioning itself for a further move upwards over the coming couple of weeks, with the gradual impact of Backloading providing the upward momentum,” they said.
The trader identified today’s auction demand and tighter supply due to the lack of a government sale tomorrow as adding further bullish impetus.
The EU’s sale of 2.9 million spot EUAs cleared 1 cent below market at €8.32, attracting bid coverage of 3.1 – close to the year-to-date average but below the coverage rate of 3.80 and 3.77 for the previous two auctions.
Secondary market prices had been trading in negative territory before the bidding window closed at 0900 GMT but immediately rose into the black after the results were published, and climbed further throughout the session.
No auction will be held on Wednesday – one of the few days on the 2015 calendar where fresh allowance supply doesn’t enter the market.
Meanwhile, there was little direction from the energy complex on Tuesday as bullish signals of falling coal prices and a stronger euro were offset by drops in power prices.
The euro rose 0.5% against the dollar after the publication of quarterly lending data lessened the chances the ECB would seek to ramp up its quantitative easing programme.
By Ben Garside – firstname.lastname@example.org