EU Market: Carbon rebounds as euro gains widen dark spreads

Published 17:42 on December 3, 2015  /  Last updated at 17:42 on December 3, 2015  /  EMEA, EU ETS  /  No Comments

EU carbon prices rose on Thursday to recover losses over the previous session as the euro hit a one-month high following a less-than-expected ECB interest rate cut.

EU carbon prices rose on Thursday to recover losses over the previous session as the euro hit a one-month high following a less-than-expected ECB interest rate cut.

The benchmark Dec-15 EUA rose 9 cents to €8.57 on ICE, at the upper end of the day’s €8.42-8.61 range on heavy turnover of 23.1 million units, 5 million of which were block trades.

The upward move cancelled out Wednesday’s 8-cent loss and put the contract in line to end the week very near to the previous week’s settlement of €8.58.

The contract dipped in early trade but rebounded after hitting the 50-day moving average at €8.42 and given further momentum following the ECB’s monthly meeting.

The euro surged to $1.08940, its highest level since Nov. 6, after the ECB disappointed short-sellers and cut its interest rate on deposits by just 10 basis points.

This caused German clean dark spreads to climb to their highest in almost two months on the Calendar 2016, one month on the 2017 and three weeks on the 2018.

The spreads rose as the euro’s big gains were only partially offset by higher dollar-denominated coal prices, making coal much cheaper for continental utilities and upping the incentive for them to sell electricity forwards and buy the corresponding carbon.

“The euro might correct tomorrow but with the spreads much higher there could be strong demand [from utilities] at tomorrow’s auction,” one trader said.

Meanwhile, today’s auction was relatively benign. The EU’s sale of 2.9 million spot EUAs cleared at a fairly standard 2 cents under market, though with bid coverage of 2.33 slightly lower than the 2.92 November average.

The benchmark Dec-15 CER contract rose 2 cents to €0.60 ICE, retrieving Wednesday’s loss on turnover of 470,000, well above the norm for the normally thinly-traded units.

By Ben Garside – ben@carbon-pulse.com

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