EU Market: EUAs end week flat, defying narrowing spreads

Published 17:43 on November 13, 2015  /  Last updated at 22:26 on November 20, 2015  /  EMEA, EU ETS  /  No Comments

EU carbon prices ended the week virtually unchanged to halt a downturn over the two previous weeks despite bearish signals from the energy complex.

EU carbon prices ended the week virtually unchanged to halt a downturn over the two previous weeks despite bearish signals from the energy complex.

The Dec-15 EUA contract settled up 2 cents at €8.39 on ICE, barely budging in a tight €8.34-8.42 range on thin turnover of 7.6 million. It was down just 2 cents week-on-week.

The benchmark EUA futures briefly crossed above their middle Bollinger band and 20-day moving average now at €8.49 on Wednesday, but kept above their lower Bollinger band now at €8.28, a technical level that prices bounced off on Tuesday and provided support over the rest of the week.

Analysts had warned off further losses this week on the bearish momentum built up during the previous week’s 2.5% loss, which itself extended a downward trend since carbon hit a peak of €8.71 on Oct. 29.

While carbon prices have held steady this week, German power has tanked, with the front-year baseload contract down 2.5% w/w at €28.55/MWh on EEX.

This has caused German clean dark spreads to shrink considerably, with weaker coal prices only partially offsetting the measure of profitability, denting the incentive for utilities to sell electricity forwards and buy the corresponding carbon.

The calendar 2016, 2017 and 2018 spreads are their lowest for 3, 7, and 7.5 months respectively after shrinking every session this week to lose 4%, 18% and 19% each.

AUCTION

Earlier on Friday, Germany sold 3.198 million spot EUAs at 2 cents below market and with bid coverage of 2.41.

Auction bid coverage has been mixed this week, with the first two sales attracting well above the year’s 3.1 average while the three subsequent sales have been below, including Wednesday’s 1.47 for the UK, the lowest for six months.

Next week’s auction supply is little changed, with a rare Polish sale replacing the UK’s fortnightly auction to give a weekly total of 14.81 million, down from 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:

09/11/2015 EU 2,918,000 €8.54 -0.02 4.04
10/11/2015 EU 2,198,000 €8.58 -0.01 2.71
11/11/2015 EU 933,000 EUAAs €8.25 -0.23 4.02
12/11/2015 EU 2,198,000 €8.40 -0.04 3.76
13/11/2015 DE 3,198,000 €8.45 -0.03 2.03

And next week’s scheduled sales:

16/11/2015 EU 2,198,000
17/11/2015 EU 2,198,000
18/11/2015 UK 839,000 EUAAs
18/11/2015 PL 2,855,500
19/11/2015 EU 2,198,000
20/11/2015 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 0% 0.757% 0.960% 1.179% 2016 €3.93/MWh -0.05
Dec-15 0.834% 1.008% 1.212% 2017 €2.73/MWh -0.47
Dec-16 1.182% 1.412% 2018 €2.33/MWh -0.47
Dec-17 1.636% (based on 36% efficiency factor)
(does not include transaction costs)

 

By Ben Garside – ben@carbon-pulse.com

Comment