(Corrects final 2015 auction date to Thursday from Wednesday)
European carbon rose for a second straight day on Tuesday, recovering further from the 11-week low touched on Monday as a strong auction result and continued bargain-hunting lifted prices.
The new benchmark Dec-16 EUA futures trading on ICE closed up 13 cents at the top of their €8.08-8.28 intraday range, though volume was lighter than has been seen in recent days at 11.6 million.
Dec-16 prices are now up 4% from their low of €7.96 hit on Monday, the day the former bellwether Dec-15 contract expired.
“Today’s auction cleared strong and generation spreads remain healthy … There are suddenly not many sellers so the offer side is shallow, and that amplifies moves,” one trader said.
In the penultimate auction of 2015, a group of 25 EU member states sold 2.918 million spot EUAs for €8.05 each, which at a 5-cent discount to the Dec-16s represented a premium of 3 cents over the daily futures.
The sale attracted 21 participants who collectively submitted bids worth a total of 7.38 million units.
The EU will on Thursday sell 2,818,500 allowances, before auctions take a break until the new year.
Some market participants said this pause in new supply could see EUA prices gain over what is typically a quiet and illiquid trading period.
“The recent correction wiped out most of the longs, but there was no fundamental reason for it, so that’s why we’ve bounced back so quickly. It was caused by stop-losses and speculators, many of whom have rebuilt their bullish positions,” a second trader said.
He added that the EUA price drop also attracted some utilities back to the bid after many had stood on the sidelines for the past few weeks.
German baseload power prices were supportive of EUAs on Tuesday, gaining around 1% across the board, but the effect on the clean dark spreads was muted by firmer carbon and coal and a weaker euro.
Despite two days of light losses on the spreads, they remain closer to their 2015 highs than their lows.
Several traders said they would also be focused on the US Federal Reserve on Wednesday, which is widely expected to raise interest rates for the first time in nine years. The move could dent the euro, which in turn makes coal more expensive for European utilities.
By Mike Szabo – mike@carbon-pulse.com
