EU Market: Carbon soars 5% in choppy trade as shorts cover ahead of data

Published 11:58 on March 31, 2016  /  Last updated at 21:11 on March 31, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices soared to a one-month high above €5 in choppy trade on Thursday, with traders attributing the gains to a second day of short-covering ahead of Friday’s ETS emissions data release.

EU carbon prices soared to a one-month high above €5 in choppy trade on Thursday, with traders attributing the gains to a second day of short-covering ahead of Friday’s ETS emissions data release.

The front-year EUA contract on ICE settled up 25 cents or 5% at €5.22 on moderate volume of 11.1 million units, having traded as high as €5.24 in the session’s final 30 minutes.

The benchmark futures had posted a 4% rise following a late spurt on Wednesday on what participants said was bearish speculators buying back positions in anticipation of any surprises in Friday’s provisional data.

“Nobody wants to be caught on the wrong foot,” said one trader.

Prices drifted lower through much of the first three hours of Thursday’s trade, but surged by more than 20 cents in the minutes before the morning’s EUA auction ended in what appeared to include some stop-losses being triggered.

They then immediately dropped back below €5 just before the results were published, only to recover shortly thereafter and continue their march higher through the afternoon.

The EU auction itself provided only mixed signals, clearing at €4.97, some 3 cents below market.  That came after two straight days of small premiums, and yet today’s sale was the only one this week with above-average bid coverage at 2.43.

With today’s rise, the Dec-16s have confirmed their break-out of the downtrend in place since late February, while also busting above both their upper Bollinger Band and their 50-day moving average – technical barriers that have not been crossed to the upside since last year.

The contract’s RSI also topped the 50-mark for the first time since December, pulling further away from the ‘oversold’ area below 30 and providing additional bullish impetus.  However, prices are still some 37% below where they were at the end of 2015.

All eyes will now be on whether the front-year futures can crack €5.50, identified by many as the next technical resistance level.

That could come following the release of the 2015 ETS emissions data, which is slated to published by the European Commission at 1000 GMT on Friday.

“Forecasts are somewhere between an 0.2% and 1% increase, but you never know, and therefore people think it’s better to stay away and wait a bit to see the numbers and how the market will react after,” the trader added.

A poll of six analysts taken by Carbon Pulse showed ETS emissions were mostly unchanged last year compared to 2014.

Separately on Thursday, Poland-based brokers Consus lowered their average EUA price forecast for Q2 to €5.29, down 12.1% from their previous view published earlier this month, with the recent consolidation of prices below €5 and the lack of free allocation for 2016 to key countries weighing on prices.

“The allocation in [Spain and Italy], in particular, is due to increase of the supply pressure in the EUA market as the number of units to be transferred to the operators of Italian and Spanish installations is nearly €129 million,” Consus said in an emailed note.

Updated data released by the European Commission after market close on Thursday showed that no progress had been made by those governments on their EUA allocations in the past fortnight, meaning around 25% of the total 751 million free permits to be handed out to industry this year are still to come.

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

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