EUA prices tumbled late on Thursday on speculator selling triggered by falling German power prices, traders said.
The Dec-15 futures, trading on ICE Futures Europe, closed down 28 cents or 4% at €6.80, after trading down to €6.72 in the final 10 minutes of trade.
Around 18 million units changed hands on the contract.
The benchmark futures had been hovering in light trade between €6.95 and €7 through much of the afternoon, before starting to ease in the last 20 minutes of the session.
The contract then broke below a key technical support at €6.80 and fell to its intraday low before buyers stepped in to lift it back above that mark.
“Power collapsed and the (German) dark spread is pretty low,” one trader said, citing the likely reasons for the late drop in EUAs.
Calendar 2016 German baseload power, trading on EEX, also fell towards the end of the day to €32.20/MWh, down from yesterday’s settlement of €32.71.
However, DES ARA coal for 2016 delivery also fell, shedding 95 cents to $61.10/tonne and supporting European dark spreads.
“But the fact that the steep fall in EUAs started during (ICE’s) settlement period suggests it was specs trying to push it lower,” the trader added.
Prices had eased throughout the day on light selling after hitting an intraday high of €7.14 in the first hour of action.
“There’s definitely selling pressure out there, but there’s also some nervousness as people don’t want to be short,” another trader said.
Front-year EUA prices have been volatile of late as lawmakers and EU member states continue to wrangle over the start date and design of the bloc’s Market Stability Reserve.
After hitting a 2015 low of €6.66 early on Wednesday, the futures surged on comments from a senior EC official, posting a 4.4% daily gain and closing back above €7.
The second trader predicted prices will remain in a 50-cent range between €6.65-7.15 until the market gets more clarity on the MSR proposal’s future.
“It was good to see yesterday’s bounce. Technically, that was the floor the market was searching for, but there’s still a lot of volume that has not yet been allocated,” the second trader said.
He was referring to a Mar. 3 update from the EC showing that around a third of this year’s free EUA allocation set aside for industry and heat producers had not yet been distributed.
“Our clients have been eyeing prices above €7 for the past eight weeks, so we’ll probably see some selling pressure next month as more EUAs are allocated,” he added.
Dec-15 CERs settled unchanged at 40 cents.
By Mike Szabo – mike@carbon-pulse.com
