EU carbon prices plummeted to a six-month low on Wednesday as mostly speculative selling was met with scarce demand due to unseasonably warm weather and a European holiday, and as wider bearish factors weighed, traders said.
The front-year EUA futures trading on ICE tumbled to as low as €7.74 around 1635 GMT, a daily drop of 31 cents or 3.8%, before climbing back to end the day at €7.80. Prices last traded at these levels in mid-July.
Volume was heavy at more than 17 million units changing hands on the Dec-16s.
Prices had been steady around €8.05-8.15 through much of the day before selling pressure around 1530 GMT briskly pushed EUAs below Tuesday’s intraday low of €8.02 and the psychologically-key €8.00 level.
Market participants said EUA buying support has been soft so far this week, mainly due to unfavourable fundamentals and as many were likely waiting to start purchasing when government auctions resume next week.
“There aren’t many buyers around … A number of the normally big buying countries are also off today,” one analyst said, referring to the Epiphany holiday being celebrated across much of Europe including Poland, Austria, and parts of Germany, Italy, and Spain.
Traders identified a number of additional bearish factors, both fundamental and macroeconomic, that were leaning on EUA prices, including higher-than-average temperatures across most of Europe, record low German power prices, and Brent crude trading at an 11-year low.
The Calendar 2017 baseload German power contract on EEX had been mostly flat around €25.80/MWh before showing some weakness related to lower EUAs.
Rotterdam coal prices also gained around 1% on ICE, further dampening utility demand for carbon.
Traders said it was hard to say who was behind Wednesday’s EUA selling, but several postulated that it was mainly speculator-driven, due to the fact that it occurred very quickly and was mostly isolated to the front-year contract.
One added that a number of stop-losses appear to have been triggered, which may have been tied to speculative long positions built up following mid-December’s brief correction, during which prices fell by more than 5% over two days before recovering.
Bernadett Papp, an analyst at brokers Vertis, also cited weakness in equity markets as a factor in Wednesday’s sell-off, which stemmed from concerns over poor Chinese economic data and reports of a nuclear test in North Korea.
Figures showed that activity in China’s services sector – the biggest single contributor to the country’s GDP – dropped to a 17-month low in December, however this jolt to confidence in the health of the global economy was partially offset by strong US jobs data.
Papp noted that the Dec-16 EUA futures were now in oversold territory, with their Relative Strength Index dropping below 30 for the first time since mid-December.
She added that the next technical support level was seen around €7.70.
By Mike Szabo – mike@carbon-pulse.com
