EU Market: Carbon recovers to consolidate near €5 for a rare weekly gain

Published 18:39 on March 11, 2016  /  Last updated at 19:24 on March 11, 2016  / Ben Garside /  EMEA, EU ETS

EU carbon prices rose in early trade and remained pinned close to €5.00 for much of Friday in a calm session that capped a relatively stable week.

EU carbon prices rose in early trade and remained pinned close to €5.00 for much of Friday in a calm session that capped a relatively stable week.

The Dec-16 EUA contract ended up 8 cents on ICE at €5.00 on slim volume just shy of 9 million.

That resulted in a weekly gain of just 7 cents with prices ending at the lower end of the week’s €4.85-5.25 range.

It was only the second positive week so far this year, with prices still down 40% on their 2015 close.

Traders have grown increasingly confident that carbon won’t breach the 22-month low hit twice last month, but also remain doubtful that it will mount any rapid recovery.

The main driver of the week has been oil price movements, with prices largely unresponsive to more fundamental indicators such as wider clean dark spreads and strong auction results.

“Tracking an unrelated macro product [such as oil] suggests a balanced market looking for direction,” said Redshaw Advisers in an emailed note on Thursday.

Prices dipped to as low as €4.93 on Friday afternoon, in sympathy with sliding Brent crude prices, which were still up around 44 cents on the day at $40.44/bbl after the IEA said oil may have reached its bottom.

German clean dark spreads narrowed as higher coal prices eclipsed gains in power, but still remained slightly up week-on-week after touching multi-day highs on Thursday.

Meanwhile, Germany sold 3.495 million spot EUAs for €5.00 each earlier on Friday, in an EEX-hosted auction that cleared a cent above market.

The small premium extended a trend of EU government allowance sales clearing at or above the secondary spot market to seven straight days.

Friday’s sale attracted bids from 23 participants equivalent to a total 10.4 million units, translating into an oversubscription rate of 2.98, which was the highest seen in almost three weeks.

And adding to the auction result’s bullish tone was the fact that just nine firms were successful, suggesting more aggressive bidding by some participants.

The winners walked away with an average 388,300 allowances each, which was the most recorded in a government EUA auction since late January.

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:

07/03/2016 EU 3,425,000 €4.95 +0.00 2.54
08/03/2016 EU 3,425,000 €5.00 +0.01 2.88
09/03/2016 UK 3,489,500 €4.99 +0.02 1.92
10/03/2016 EU 3,425,000 €5.00 +0.04 2.65
11/03/2016 DE 3,495,000 €5.00 +0.01 2.98


And next week’s scheduled EUA sales:

14/03/2016 EU 3,425,000
15/03/2016 EU 3,425,000
16/03/2016 EU 683,500 (EUAAs)
17/03/2016 EU 3,425,000
18/03/2016 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 0.518% 0.791% 0.935% 1.102% 2017 €3.83/MWh +0.39
Dec-16 1.000% 1.094% 1.254% 2018 €2.94/MWh +0.31
Dec-17 1.188% 1.380% 2019 €2.93/MWh +0.33
Dec-18 1.566% (based on 38% efficiency factor)
(does not include transaction costs)

By Ben Garside and Mike Szabo –