European carbon prices slipped on Friday but held on to notch their first weekly gain in 2016, after plummeting the previous six weeks to their lowest since 2014.
Front-year EU Allowance futures trading on ICE settled down 9 cents at €5.17, a weekly gain of 2%.
Volume was moderate at 16.8 million units changing hands.
Prices hit a nine-day high of €5.44 in the morning, but slid back to Thursday’s settlement by 1000 GMT, the time bidding in Germany’s weekly EUA auction ended.
The Dec-16s then receded to as low as €5.05 in afternoon trade, following crude oil lower, before creeping higher in the final hour.
The bellwether EUA futures have posted some of their largest daily gains this year on Fridays, a trend that some observers have attributed to the closing of speculative short positions ahead of the weekend.
“The fact that we haven’t seen major price rises in the last two days means that the market is not trading particularly short, compliance buying is picking up, and selling from new free allocation isn’t materialising just yet,” said Tom Lord of Redshaw Advisors.
“Crucially the EUA price carnage has been stopped in its tracks this week. We favour consolidation around this level.”
EUAs have held most of their ground after breaking out of the downward-sloping trend channel seen since the start of the year, which guided prices to their 22-month low of €4.62. Though they could come under more pressure next week.
EU member state governments are due, by the end of February, to finish handing free EUA allocations for 2016, which some market participants said could trigger more sales, especially from any industrials needing to raise cash.
In addition, auction volumes ramp up again next week, rising back to 17.26 million units from this week’s 13.77 million.
Friday’s German auction saw 3.495 million spot allowances sold for €5.26 each, in a sale that cleared 3 cents below market.
Its bid coverage was the highest so far this month at 2.58.
Meanwhile, the German clean dark spreads dipped slightly, mainly on the back of stronger coal prices.
Below are this past week’s EUA auction results, featuring the clearing price, distance to secondary spot market price on ICE at the time the bidding window closed, and bid-to-cover ratio:
| 15/02/2016 | EU | 3,425,000 | €4.97 | -0.01 | 2.07 |
| 16/02/2016 | EU | 3,425,000 | €4.78 | -0.05 | 2.39 |
| 17/02/2016 | PL | 120,000 (EUAAs) | €4.80 | +0.00 | 13.86 |
| 18/02/2016 | EU | 3,425,000 | €5.22 | -0.01 | 2.00 |
| 19/02/2016 | DE | 3,495,000 | €5.26 | -0.03 | 2.58 |
And next week’s scheduled EUA sales:
| 22/02/2016 | EU | 3,425,000 |
| 23/02/2016 | EU | 3,425,000 |
| 24/02/2016 | UK | 3,489,500 |
| 25/02/2016 | EU | 3,425,000 |
| 26/02/2016 | DE | 3,495,000 |
| Implied EUA carry trade annual returns | German clean dark spreads | |||||||
| Dec-16 | Dec-17 | Dec-18 | Dec-19 | Cal Yr | Price | Wk chg | ||
| Spot | 0.466% | 0.740% | 1.021% | 1.198% | 2017 | €3.64/MWh | -0.44 | |
| Dec-16 | 0.967% | 1.249% | 1.403% | 2018 | €2.89/MWh | -0.38 | ||
| Dec-17 | 1.533% | 1.620% | 2019 | €2.87/MWh | -0.24 | |||
| Dec-18 | 1.698% | (based on 38% efficiency factor) | ||||||
| (does not include transaction costs) | ||||||||
By Mike Szabo – mike@carbon-pulse.com
