EU Market: EUAs posts 2.5% weekly loss as weaker euro dents utility appetite

Published 16:21 on November 6, 2015  /  Last updated at 01:56 on November 7, 2015  / Ben Garside /  EMEA, EU ETS

EU carbon prices dipped to a fresh two-week low on Friday amid weak demand for a government auction and a bearish energy complex.

EU carbon prices dipped to a fresh two-week low on Friday amid weak demand for a government auction and a bearish energy complex.

The benchmark Dec-15 EUA futures settled down 6 cents at €8.41 on turnover of 10.9 million, off the day’s floor of €8.35, which extended Wednesday’s two-week low by a cent.

The contract jumped 9 cents to the day’s high of €8.58 at market open before immediately falling back.

Prices were still in positive territory but turned south after Germany’s sale of 3.2 million spot EUAs cleared 2 cents below market at 1000 GMT.

The auction was just over two times oversubscribed, the lowest this week and well below the year’s average of 3.1 for bid coverage.

“The weak auction set the tone for today and there hasn’t been much bullish news all week, with prices not helped by a weaker euro tightening the dark spreads,” said one trader.

“But overall, carbon now looks quite cheap for many and I think we’ll resume an upward trend heading towards the end of the year.”

EUA auction supply lifts to 15.08 million next week, up from this week’s 11.95 million.


Today’s dip means carbon posted a 2.5% or 22 cent weekly loss.

The benchmark carbon contract lost ground every day this week bar Thursday, with the biggest downward move on Tuesday, when it fell 15 cents as the energy complex turned bearish and speculators took profits.

Underpinning the declines were weaker German clean dark spreads, which lost further ground today amid a falling euro as investors rushed to the dollar following strong US jobs numbers in October, raising the chances of an interest rate hike next month.

The euro is down 2.6% week-on-week, making European coal prices at least $1 per tonne more expensive compared to a week ago.

The calendar 2016 and 2017 clean darks are now at their lowest for three months, having dropped 14% week-on-week, with the 2018 spread at its narrowest since April after dropping 20%.

These thin profit margins for European utilities dent their incentive to sell electricity forwards and buy the corresponding carbon.

Despite this week’s drop and the previous week’s flatlining, analysts are still predicting EUAs will hold around these levels through the rest of the year, with slim prospects for a sentiment-led boost at the Paris climate summit.

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:

02/11/2015 EU 2,918,000 €8.54 -0.02 4.04
03/10/2015 EU 2,198,000 €8.58 -0.01 2.71
04/10/2015 EU 933,000 EUAAs €8.25 -0.23 4.02
05/10/2015 EU 2,198,000 €8.40 -0.04 3.76
06/10/2015 DE 3,198,000 €8.45 -0.03 2.03

And next week’s scheduled sales:

09/11/2015 EU 2,198,000
10/11/2015 EU 2,198,000
11/11/2015 UK 3,123,000
12/11/2015 EU 2,198,000
13/11/2015 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 1.149% 0.849% 1.062% 1.170% 2016 €3.86/MWh -0.67
Dec-15 0.832% 1.064% 1.171% 2017 €3.04/MWh -0.57
Dec-16 1.297% 1.351% 2018 €2.63/MWh -0.65
Dec-17 1.397% (based on 36% efficiency factor)
(does not include transaction costs)


By Ben Garside –