EU Market: Carbon hits fresh 20-mth low amid weaker power prices

Published 20:45 on February 8, 2016  /  Last updated at 23:08 on February 8, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices hit a fresh 20-month low of €5.15 on Monday, extending January’s massive losses that have now sliced almost 38% off the price to emit in Europe so far in 2016.

EU carbon prices hit a fresh 20-month low of €5.15 on Monday, extending January’s massive losses that have now sliced almost 38% off the price to emit in Europe so far in 2016.

The Dec-16 EUA contract eventually settled down 32 cents or 5.7% on ICE at €5.25, having broken below last week’s bottom of €5.46 earlier in the morning.

Turnover on the benchmark futures was brisk at 19.7 million.

Next-year German power prices also suffered heavy losses and were down 42 cents or 1.8% to a record low settlement of €21.94/MWh on EEX.

Declines in both power and carbon, with coal prices and the euro’s value little changed, largely cancelled each other out to leave German clean dark spreads only a touch lower than Friday.

“The signs from the energy mix, the abundant [EUA] auction supply and the overall declining trend suggest that further declines might be in the cards this week,” wrote analyst Bernadett Papp at brokers Vertis in a weekly blog post.

She pegged the next support level at €5.00, where prices last languished around the turn of 2014.

Thomson Reuters analysts said it was “probably too early to announce the bottom of the bear-trend” given today’s price fall, and that “the downside risk hangs over the market like the Sword of Damocles.”

Prices edged lower following Monday’s auction, which cleared a cent below market and attracted bid coverage of 2.13, slightly below the year-to-date average of 2.22.

At 17.26 million units, government auction volumes for this week remain on a par with those last week, but they are ramping up as the Backloading programme winds down, with 28% more EUAs to be sold this month versus Feb. 2015.

Redshaw Advisors said today’s fall was part of what was becoming a regular pattern of losses on Monday mornings, which they suggested could be due to a re-opening of short positions closed on Fridays.

In a weekly note to clients, they wrote that EUA prices might be helped this month by the addition of once-per-year buying by smaller industrial installations ahead of their April compliance for 2015 emissions, but that the free allocation of 2016 units by governments later in the month might make any gains short-lived.

“If carbon can’t recover when clean dark spreads are increasing and when there is compliance buying then the price needs to find a level where market participants are comfortable going long carbon.  History tells us this price has a ‘4’ in front of it,” they added.

By Ben Garside – ben@carbon-pulse.com

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