EU carbon prices were little changed on Tuesday in what has so far been a becalmed start to the week, as analysts grow more confident that prices won’t fall much further.
The Dec-16 EUA contract ended down just 1 cent at €5.00, near the middle of a relatively narrow €4.92-€5.12 range on volume of 13 million, less than half of the busiest sessions last week.
Volume was likely dented by the fact that many market participants were making their way to an annual European carbon market conference in Amsterdam, which is taking place Wednesday and Thursday.
The benchmark carbon contract has settled within 1 cent of €5.00 for the past three sessions, a consolidation that analysts said made it more likely EUAs would not slip below €4.62, the 22-month low hit twice in February.
Prices got within 5 cents of that bottom last week and posted their seventh weekly decline out of eight, though the 17-cent fall was milder than some of January’s heavy losses on the way down from €8.29 at the end of 2015.
Anatoly Stolbov at Virtuse trading house gave a neutral outlook for prices in a weekly report published Tuesday.
“Politics and the end of free allocation suggest an upward direction for the price,” he said, referring to the EU environment ministers meeting to review 2030 climate and energy goals on Friday and the conclusion of 2016’s allocation of free allowances.
He said these factors were counterbalanced by clean darks spreads at multi-year lows and the lack of reaction to bullish technical signals last week, which he said “raised concern about the market’s strength.”
Energy Aspects analysts echoed Stolbov’s view that prices could stabilise near current levels this week.
“It does seem as though €5 is a reasonable bottom for prices – although it is unclear who exactly would want to enter at this point,” they said in report on Tuesday.
Energy Aspects expect EUAs to drift upwards over the coming months, mainly due to Backloading and delayed utility hedging, but cautioned that “the market looks nervous and further downside certainly cannot be ruled out.”
Meanwhile, the EU’s spot auction cleared one cent below market at €4.90 with bid coverage of 2.34, a marked improvement on Monday’s 1.64 oversubscription rate and above the year-to-date average of 2.18.
German clean dark spreads inched higher as coal prices dropped, but they remain below last week’s levels, giving only the weakest of buy signals to utilities.
By Ben Garside – ben@carbon-pulse.com
