EU Market: EUAs finish modestly higher to post 1.8% weekly loss

Published 17:51 on March 24, 2016  /  Last updated at 06:01 on March 25, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices lifted on Thursday to move further away from Wednesday's one-month low, but they posted a 1.8% weekly loss in stagnant trade that kept carbon stuck in a narrowing range.

EU carbon prices lifted on Thursday to move further away from Wednesday’s one-month low, but they posted a 1.8% weekly loss in stagnant trade that kept carbon stuck in a narrowing range.

Front-year EU Allowance futures on ICE settled up 5 cents at €4.86, at the top of the day’s €4.73-4.86 range, on modest turnover of just over 9.3 million.

EUAs hit their week’s peak of €5.04 on Monday and gradually lost ground from there until they repeatedly bounced off €4.70 on Wednesday, amid some of the lowest volumes seen so far this year and ahead of the four-day Easter holiday.

The Dec-16 contract has spent much of the week dipping intraday below the lower limits of a recently-formed ‘pennant’ formation and its Bollinger Bands, both within a few cents of €4.80 on Thursday.

But each day prices have recovered late to close above these technical support levels, pulling back from further falls that could send prices back to the two-year low of €4.62 hit in February.

Prices nudged higher on Thursday after the EU’s auction cleared 2 cents above market, the first time this week a government sale has not cleared at a discount to the secondary market.

Bid coverage was 2.22, close to other EEX-hosted sales this week and roughly in line with the year-to-date mean of 2.21.

Auctions this week have prompted little reaction, generally clearing just below market levels with average bid coverage.

Meanwhile, German clean dark spreads narrowed slightly as carbon and coal rose while power prices were unchanged or lower.

But the spreads gave a slightly bullish signal for carbon compared to a week earlier, widening upwards of 2.5%.

The signal remains relatively weak, however, as spreads are still around 30% lower than the start of the year.

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:

21/03/2016 EU 3,425,000 €4.86 -0.02 2.25
22/03/2016 EU 3,425,000 €4.80 -0.02 2.14
23/03/2016 UK 3,489,500 €4.73 -0.03 1.47
24/03/2016 EU 3,425,000 €4.76 +0.02 2.22

 

And next week’s scheduled EUA sales:

29/03/2016 EU 3,425,000
30/03/2016 PL 3,526,000
31/03/2016 EU 3,425,000
01/04/2016 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 0.559% 0.712% 0.900% 0.983% 2017 €3.69/MWh +0.11
Dec-16 0.823% 1.024% 1.089% 2018 €2.83/MWh +0.08
Dec-17 1.224% 1.220% 2019 €2.76/MWh +0.07
Dec-18 1.210% (based on 38% efficiency factor)
(does not include transaction costs)

 

By Ben Garside – ben@carbon-pulse.com

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