European carbon prices gained for a second straight day on Tuesday, nearing €7 on short-covering, a bullish auction, and a stronger energy complex, which was lifted by colder weather across Europe.
Front-year EUA futures closed up 12 cents at €6.88 on ICE, after trading as high as €6.95 earlier in the day.
Volume was on the heavy side at 17.6 million units traded, with a further 3.7 million changing hands along the rest of the curve.
“Looks like a few more shorts are taking profits … [and] the auction, power and the euro were supportive [of carbon],” one trader said.
Calendar 2017 baseload German power prices rose by nearly 1% on EEX, while the euro also gained against the US dollar, which offset the effect of firmer European coal on the clean dark spreads.
Combined, these factors pushed up the German darks slightly, but the spreads remain depressed at some 10% below last week’s levels, muting utility demand for carbon.
Observers also noted that at 13.77 million allowances, spot EUA auctions are 3.5 million units lighter this week compared to last, meaning less supply coming to market.
A group of 25 EU member states earlier on Tuesday sold 3.425 million spot EUAs in an auction that cleared a cent above market and attracted bids from 21 participants totalling 9.25 million units.
Wednesday will see the EU-25 auction 683,500 spot EUAAs in the bloc’s first aviation allowance sale of the year, before EUA auctions resume on Thursday.
DOWNTREND
After posting a 4-cent gain on Monday, the benchmark Dec-16 EUA futures have now gained some 5% from their 10-month low of €6.56 touched earlier that day.
However, they remain some 17% below end-2015 levels and 22% below last year’s peak having sold off during the first two weeks of 2016.
Market participants have attributed the sharp decline mainly to speculative selling, adding that some industrials offloading surplus EUAs and a few utilities unwinding hedges were also seen to be contributing.
“[EUA] prices remain in a steep downtrend and may see additional downside in the short-term. The market, however, is extremely oversold … [and] the weather favours a correction to the upside, as temperatures are well below the seasonal average and wind generation remains low,” said Anatoly Stolbov, chief analyst at Prague-based Virtuse.
Temperatures across Europe are forecast to be some five degrees below normal, but they are expected to rise back towards seasonal norms next week.
Energy Aspects analyst Trevor Sikorski, writing in a weekly client note, said he would not be surprised to see EUA prices post somewhat of a recovery this week as speculative bears buy back their short positions and take profits, but he added that a return to €8 “could take some time”.
Meanwhile, no CERs were traded on ICE on Tuesday.
By Mike Szabo – mike@carbon-pulse.com
