EU Market: Carbon dips closer towards €8 as power prices plunge

Published 17:38 on January 5, 2016  /  Last updated at 17:38 on January 5, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices fell for a second day on Tuesday as plummeting power prices dented confidence that utilities would buy emissions units.

EU carbon prices fell for a second day on Tuesday as plummeting power prices dented confidence that utilities would buy emissions units.

The benchmark Dec-16 EUA contract settled down 5 cents on ICE at €8.06 having traded as low as €8.02.

Turnover was again modest at just 6.5 million, with 9.8 million changing hands on all other vintages.

Today’s drop means carbon has lost 23 cents or 2.8% so far this year despite the lack of supply from government auctions, which resume next week after a three-week pause.

“The forecasts are for warm weather for the remaining of the winter, so this is having an effect on EUAs,” said one trader, who said he expected volumes to remain subdued all week as a few speculators build up their positions following the New Year holiday.

The Cal-17 baseload German power contract on EEX fell by as much as 64 cents to a record-low €25.68/MWh on EEX.

German power prices have been dropping steadily over the past year but briefly turned upwards during the holiday period amid forecasts of a brief cold spell that may have broken the mild winter and lifted demand for carbon-intensive electricity.

Today’s drop in power, only partially offset by slightly weaker carbon and coal, hit German clean dark spreads, further denting the likelihood that utilities will opt to lock-in electricity and carbon prices at these levels.

Analysts expect carbon’s weak start to 2016 to be short-lived as government auctions continue to be curbed during the final year of the three-year Backloading programme.

Brokerage Consus predicted on Tuesday that benchmark EUA prices will average €9.06 over the first quarter, as buying increases ahead of the Apr. 30 compliance deadline, it said in an emailed monthly forecast.

However, it cautioned that prices may come under further pressure in February and March as governments begin to hand out the year’s free EUA allocation to industry.

By Ben Garside – ben@carbon-pulse.com

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