EU Market: EUAs sink to two-week low on higher coal, profit-taking

Published 16:29 on November 3, 2015  /  Last updated at 17:36 on November 3, 2015  /  EMEA, EU ETS  /  No Comments

European carbon sank to a two-week low on Tuesday on dearer coal prices, a weaker euro, and profit-taking by speculators after EUAs had gained more than 7.5% over the past five weeks.

European carbon sank to a two-week low on Tuesday on dearer coal prices, a weaker euro, and profit-taking by speculators after EUAs had gained more than 7.5% over the past five weeks.

The front-year futures on ICE settled down 14 cents at €8.45 after hitting their intraday low of €8.39 earlier in the day.

“Riding this strong bullish trend, we need to see a correction from time to time,” one trader said, referring to the sizeable 15% gains posted by EUAs so far this year.

The Dec-15s had risen steadily from a low of €7.87 on Sep. 29 to a three-year high of €8.71 on Oct. 29, trading within a fairly narrow upward-sloping channel in that time.

“Momentum seems to have sputtered out and we’ve fallen out of the bullish corridor, but this is likely just a spec shakeout,” another trader said, adding that many would likely see today’s dip as a buying opportunity.

BROKEN SUPPORT LEVEL

The Dec-15s also broke below their 20-day moving average, which doubles as the contract’s middle Bollinger Band, at €8.45 – a level not breached since Oct. 7.

Eyes now move to the 50-day moving average, which at €8.26 currently is aligned with levels that acted as technical resistance for the contract in September and early October.

Turnover was heavy at just under 19 million units changing hands on the benchmark contract.

“It’s a big move, but the size (of volumes) amazes me more than the price action,” the first trader said.

“There might be a bit of industrial selling today as well, but the decline is no big deal.”

SPREADS KNOCKED AGAIN

Coal for delivery in Europe next year prices rose by 50 cents or 1% to $48.75/tonne on ICE, while the euro hit a three-month low against the dollar on expectations of further dovish sentiment from ECB boss Mario Draghi when he speaks later today.

The weaker euro pushed coal prices for European utilities up to over €44.50/tonne – a level not seen since mid-October.

This, combined with lower carbon and slightly higher German baseload power prices, knocked another 3-7% off German clean dark spreads, a day after they lost upwards of 8% each.

The spreads, measures of profitability for coal-fired power generators in the EU’s biggest economy and emitter, are now trading at levels not seen in at least a month, discouraging utilities from selling power and buying the corresponding amount of carbon.

A group of 25 EU member states earlier in the day sold 2.918 million spot EUAs for €8.58 each, in an auction that cleared at market and attracted total bids equivalent to 7.91 million units.

The group will auction 933,000 spot EUAAs on Wednesday, before EUA sales resume on Thursday.

By Mike Szabo – mike@carbon-pulse.com

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