EU Market: Carbon posts 6.5% weekly gain as emission data roils market

Published 19:21 on April 1, 2016  /  Last updated at 19:21 on April 1, 2016  /  EMEA, EU ETS  /  No Comments

EUAs were rocked by EU emission data coming in lower than expected on Friday, but they recovered to post a 6.5% weekly gain that confirms prices have broken out of their recent downtrend.

EUAs were rocked by EU emission data coming in lower than expected on Friday, but they recovered to post a 6.5% weekly gain that confirms prices have broken out of their recent downtrend.

The Dec-16 EUA market settled down 4 cents at €5.18 on ICE after a volatile session that saw prices oscillate between €4.91 and €5.35, the widest daily trading range and highest level since Feb. 23.

Turnover was also high at 17 million for what has been a relatively becalmed few weeks. A further 4.5 million traded on other vintages.

EUAs rose in early trade but fell in the immediate aftermath of the data release shortly after 1000 GMT, before mounting a recovery and then drifting in a thin trade in the afternoon.

The preliminary data showed a 0.5% drop in ETS emissions in 2015, lower than the 0.2 year-on-year rise a Carbon Pulse poll last month showed.

“It looks like people were justified in short-covering as things were pretty jumpy today,” said one trader.

He was referring to rises notched in the previous two sessions, over which carbon prices had climbed by as much as 9% as traders unwound bearish bets in case prices spiked sharply on the data.

Despite the volatility, traders were mindful that the emissions figures had little bearing on the market’s medium-term outlook with the market still carrying a surplus of some 2 billion units.

“Ultimately, in a heavily over-supplied market, a small fall or rise in the emissions does very little to change the underlying status quo,” said traders at Redshaw Advisers in an emailed note to clients.

They said that today’s eventual recovery for EUAs boosted the potential for further gains next week but that this could be held in check by a full auction schedule.

The week’s gains confirm EUAs have broken their downtrend in place since late Feb. Prices sit at their 50-day moving average with further bullish impetus provided by an RSI above 50 for the first time since December.

AUCTIONS, SPREADS

Auction supply climbs 24% next week to 17.3 million in the first five-day trading week following an Easter holiday period of two four-day weeks.

Prices were stable around the end of Germany’s auction at 0900 GMT, which gave the weakest demand indicators all week. The sale cleared at €5.18, 4 cents below market with a below average cover ratio of 1.58.

The signal from the energy complex was bullish for carbon, with German clean dark spreads hitting their highest levels all week amid power price gains combined with weaker coal prices.

The Cal-17, 18 and 19 spreads widened by between 8-10% week-on-week, but still remained as much as 30% shy of their levels at 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:

29/03/2016 EU 3,425,000 €4.75 +0.01 1.99
30/03/2016 PL 3,526,000 €4.77 +0.01 2.13
31/03/2016 EU 3,425,000 €4.97 -0.03 2.43
1/04/2016 DE 3,495,000 €5.18 -0.04 1.58

 

And next week’s scheduled EUA sales:

4/04/2016 EU 3,425,000
5/04/2016 EU 3,425,000
6/04/2016 UK 3,489,500
7/04/2016 EU 3,425,000
8/04/2016 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 0.540% 0.676% 0.922% 1.030% 2017 €3.89/MWh +0.30
Dec-16 0.772% 1.056% 1.148% 2018 €3.00/MWh +0.27
Dec-17 1.341% 1.336% 2019 €2.88/MWh +0.22
Dec-18 1.323% (based on 38% efficiency factor)
(does not include transaction costs)

By Ben Garside – ben@carbon-pulse.com

 

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