EU Market: EUAs nudge higher but still post another weekly loss

Published 21:53 on March 4, 2016  /  Last updated at 17:44 on March 5, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices nudged slightly higher on Friday to round out a week of relatively stable prices near €5, but still lost ground for the eighth week out of nine so far this year.

European carbon prices nudged slightly higher on Friday to round out a week of relatively stable prices near €5, but still lost ground for the eighth week out of nine so far this year.

Dec-15 EUAs settled up 3 cents at €4.93 on ICE, near the top of the day’s €4.77-4.97 range, on modest turnover of 13.1 million.

Volume down the rest of the curve was also healthy at 4.1 million.

As seen on Thursday, the front-year prices fell early on Friday, just to climb back to into the black in the afternoon on what appeared to be light buying by utilities and some pre-weekend short-covering.

The small daily gain meant the benchmark contract lost 7 cents or 1.4% week-on-week, a far smaller weekly drop than some of the heavy declines seen over the first two months of the year and leading some traders to grow more confident that the market has stabilised.

Carbon got as low as €4.77 this week, some way off the 22-month low €4.62 hit twice last month that put the contract 44% below its value at the end of last year.

There was little reaction to news late Thursday that EU governments had still to distribute almost 30% of their 2016 free EUA allocations to industry, leaving the prospect that some cash-strapped, mainly southern European firms could sell once they receive them.

And in what could provide more bearish pressure for EUA prices, the German clean darks were hammered this week, with the front three calendar-year spreads losing 10-15% mainly on rising coal prices.

Calendar-year Rotterdam coal futures jumped by around $1.50/tonne on ICE as union workers at Colombia’s largest coal mine Cerrejon voted to strike in a dispute over wages and benefits.  The mine, which produces 32 million tonnes of coal annually, is jointly owned by BHP Billiton, Anglo American, and Glencore Xstrata.

 

Meanwhile, the ETS got a mixed political signal this week, with no plans by the European Commission for further market fixes and at least four EU environment ministers signalling their wish for more EU climate ambition on Friday.

Earlier on Friday, Germany sold 3.495 million spot EUAs for €4.80, representing a 4-cent premium over the secondary prompt market at the time the auction ended.  Some 24 participants submitted bids totalling 8.4 million units, the most since early last week.

This week’s auctions for a total 17.3 million EUAs recorded a mean oversubscription rate of 2.13, which was slightly below the 2.20 average seen so far this year.  The five auctions also fetched an average €4.85 per allowance, also the lowest recorded this year.

However, this week’s sale clearing prices were, on average, 1.2 cents above the secondary market, suggesting somewhat more aggressive bidding by participants.

Next week, governments will offer slightly fewer allowances at 17.26 million.

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:

29/02/2016 EU 3,425,000 €4.85 +0.01 1.64
01/03/2016 EU 3,425,000 €4.90 -0.01 2.34
02/03/2016 PL 3,526,000 €4.80 -0.01 1.84
03/03/2016 EU 3,425,000 €4.88 +0.03 2.41
04/03/2016 DE 3,495,000 €4.80 +0.04 2.40

 

And next week’s scheduled EUA sales:

07/03/2016 EU 3,425,000
08/03/2016 EU 3,425,000
09/03/2016 UK 3,489,500
10/03/2016 EU 3,425,000
11/03/2016 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 0.513% 0.793% 0.941% 1.060% 2017 €3.45/MWh -0.45
Dec-16 1.014% 1.109% 1.206% 2018 €2.73/MWh -0.47
Dec-17 1.205% 1.300% 2019 €2.64/MWh -0.40
Dec-18 1.389% (based on 38% efficiency factor)
(does not include transaction costs)

By Ben Garside and Mike Szabo – ben@carbon-pulse.com

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