EU carbon prices fell again on Thursday back towards this week’s nine-month low of €7.01, adding to sentiment that Wednesday’s rise was a “dead cat bounce” rather than the start of a price rebound.
The Dec-16 EUA contract settled down 16 cents at €7.13 on ICE to give back all the previous session’s gains on heavy turnover of 18.8 million.
It had earlier fallen to as low as €7.06, with traders identifying early drops in power prices as a key factor in carbon’s decline.
Baseload German power prices extended their record lows, with the 2017 contract settling 34 cents or 1.4% lower to €24.26/MWh on EEX.
Weaker carbon and coal prices limited losses on clean dark spreads to a few cents, but German coal-burning utility profit margins still dropped to their lowest in over a week, denting the incentive for generators to sell electricity forward and buy carbon.
ICE’s cal-17 Rotterdam coal futures dipped to fresh lows of $38.40/tonne. The ongoing fall in prices has prompted ICE to extend the lower range of strike prices on its coal contracts to $10 from $30.
The move comes days after the exchange slashed the lower range of strike prices on its NBP natural gas options.
Traders are keeping a close eye on the open interest on ICE’s Dec-16 EUA contract, which rose by over 4 million units on Wednesday to 563.8 million, according to the most recent bourse data on Thursday.
The new positions were opened during the only session that carbon has risen since the end of 2015, suggesting that traders were placing new bets in anticipation of prices lurching in one direction or another.
“It seems like a lot of people see this as the prime time to buy. It could actually be a very, very clever [long] play, but people do fear the dead cat bounce,” said one market participant.
The amount of open positions has now risen by nearly 9 million units since Dec. 31, but with most of those increasing coming as prices fell, observers are wary that more short-selling pressure could force carbon below €7 for the first time since last April.
Meanwhile, the EU’s auction of 3.425 million spot EUAs cleared at €7.05, some 2 cents below market. It attracted bid coverage of 2.47, well above the very-low 1.38 coverage in Wednesday’s UK sale and the 2.19 average recorded across the year’s first three sales.
Benchmark EUA prices remain down 14% on Dec. 31 2015’s settlement of €8.29, with many market participants suspecting that speculative short-selling has been responsible for the bulk of the decline as utilities remain on the sidelines.
By Ben Garside – firstname.lastname@example.org