European carbon prices recovered from an earlier dip triggered by a weak EU auction result, ending Monday a cent shy of a new three-year high touched in the final hour of trade.
The front-year EU Allowance futures trading on ICE Futures Europe ended up 3 cents at €8.66 on moderate volume of 7.5 million units.
The benchmark contract bounced up against €8.67 several times in late afternoon trade, a level not seen since November 2012.
Prices were supported by German baseload power, which gained around 1% across the board on EEX, as well as a firmer euro against the dollar.
Those factors combined to push German dark spreads up by between 6% and 8%, regaining ground lost late last week.
An announcement by the German government on which coal-fired power units would be placed in a so-called lignite reserve, while bearish in nature for EUAs, also helped bring clarity to the market, some market participants said, adding that it could lift hedging rates in the short-term, which in turn would translate in to carbon unit demand.
“With unknown quantities of hedging seemingly caused by German lignite power production rule changes it is hard to call price direction. However, the odds are there will be continued support and possibly higher (EUA) prices,” said Redshaw Advisors in a weekly client note.
“Continued strength with a natural target of €9 cannot be ruled out over the next few weeks.”
EUA prices dipped earlier in the day following weak interest in the EU’s auction.
The sale for 2.92 million spot units cleared at €8.55, some 6 cents below the Dec-15s at the time the bidding window closed.
Bids worth a total 7.04 million allowances were entered, the fewest since Oct. 15.
The front-year EU Allowance slid to as low as €8.55 before slowing climbing back through the rest of the day.
Analysts at Thomson Reuters Point Carbon also warned that a victory in yesterday’s Polish election by the eurosceptic and anti-EU ETS PiS party could cause some bullish speculators to take profits following recent EUA gains.
Prices are up more than 6% since the end of September, and up 18% for the year to date.
But another trader added that calls from some EU environment ministers for free industry allocations to be reined in next decade could prompt some heavy-emitting manufacturers to think twice about selling spare units.
The ministers met on Monday to discuss the European Commission’s post-2020 ETS reform proposals.
By Mike Szabo – mike@carbon-pulse.com
