EU Market: Carbon slides on heavy volume as traders foresee choppy waters ahead

Published 18:54 on December 7, 2015  /  Last updated at 18:54 on December 7, 2015  /  EMEA, EU ETS  /  No Comments

European carbon prices dropped in busy trade on Monday, as traders predicted more volatility in the days to come.

European carbon prices dropped in busy trade on Monday, as traders predicted more volatility in the days to come.

The front-year EUA futures trading on ICE settled at €8.41, an 11-cent fall from Friday and near the bottom of the day’s €8.40-8.53 range.

Volume was heavy with 28.9 million units changing hands on the benchmark contract, plus an additional 28 million transacted along the rest of the curve – much of which was linked to position rolling.

“The weak auction and lower power prices pushed carbon back below the 50-day moving average (€8.44),” one trader said, adding that the lacklustre auction result also played a role.

Bernadett Papp, an analyst with Budapest-based Vertis, identified that level as the Dec-15 EUAs’ first technical support level, but noted that it has been tested several times recently.

“The more a level gets tested, the weaker it becomes. Below this level, the November low of €8.28 euro is the next support,” she said.

“Should declining auction volumes support the price (this is the last week with a complete auction calendar), it has to break above €8.50 first to be able to retest the 2015 high at €8.71. All in all, we are more bearish for this week as the chart doesn’t show any sign of a turn.”

A group of 25 EU nations sold 2.918 million spot EUAs for €8.42 each on Monday – the lowest auction clearing price since Nov. 13 and some 3 cents below market.

The sale attracted 19 participants who collectively submitted bids equivalent to a total of 9.1 million units, translating into an oversubscription rate of 3.13 – marginally higher than the 3.08 average for this year.

Some 20.8 million allowances will be sold in the seven remaining auctions this year.

“I was expecting a strong auction today due to high dark spreads, but now I’m wondering if compliance buyers have finished purchasing and maybe only speculators will be trade for the rest of the year,” the trader said.

German baseload power prices fell by around 1% across the board on Monday, but the impact on the dark spreads was offset by weaker coal and carbon prices, translating into the Cal-16 and 17 spreads rising by around 3% each.

VOLATILITY AHEAD?

The trader said this week might also see added volatility linked to the expiration of ICE’s EUA and CER options contracts on Wednesday.

“The waters might well remain choppy and overly sensitive to price action as traders manage exposure. Following that it is hard to see where significant up or downside pressure comes from,” said Redshaw Advisors in a weekly note.

“With an auction shutdown on the horizon, fresh supply into the market will soon cease but it is an auction timetable that has been documented for a year and it is hard to see it catching out any regular market participants.”

“However, the shutdown does allow for more volatility. As the market becomes thinner at this time of the year it becomes less stable so any large order or change in the weather, such as a cold snap, can really influence the natural demand and supply balance and thus prices.”

By Mike Szabo – mike@carbon-pulse.com

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