EU Market: EUAs storm above €6 on energy complex, German auction premium

Published 10:15 on April 22, 2016  /  Last updated at 22:48 on April 22, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices hit their highest since early February on Friday, topping €6 and posting an 8.9% weekly rise on the back of a stronger energy complex and after Germany’s EUA auction cleared at a record premium.

(Updates throughout)

European carbon prices hit their highest since early February on Friday, topping €6 and posting an 8.9% weekly rise on the back of a stronger energy complex and after Germany’s EUA auction cleared at a record premium.

The front-year futures on ICE settled up 22 cents or 3.8% at €5.97, after having clawed back from their intraday low of €5.65 to hit a session peak of €6.03.

Volume on the benchmark contract was heavy at 22.1 million, with a further 4.1 million changing hands down the rest of the futures curve on ICE.

Traders said a mix of buyers were behind the move and pointed to German power as a source of the gains, as the calendar-year baseload contracts on EEX posted rises in excess of 3% for a second straight day.

And while coal also edged higher and the euro dipped against the dollar, it wasn’t enough to counterbalance power’s impact on the later-dated German clean dark spreads, which gained upwards of 10% to climb to their highest levels in two months.

UK gas and Brent crude also posted decent increases on the day and the week.

Earlier in the day, the German sale of 3.495 million allowances cleared at €5.74, some 7 cents above the secondary spot market on ICE.

Auction hosts EEX said the auction attracted 15 participants, fewer than normal, who collectively submitted bids totalling 7.13 million units, which also translated into a lower-than-average oversubscription rate.

Just eight traders walked away with a share of the allowances, suggesting aggressive bidding on the part of at least a few.

Next week’s government auction volumes, at 17.3 million units, remain near this week’s levels.  Sale quotas then drop to lower amounts for six straight weeks, before climbing back in mid-June.

The Dec-16 EUAs broke through technical resistance around €5.85, but failed to close above the psychologically-important €6 level.

They also climbed above their upper Bollinger Band, but they weren’t able to top the 38.2% Fibonacci retracement level calculated between the start of the year and the 2016 low of €4.62 hit on Feb. 17.

The benchmark contract is up 29% from that two-year nadir but remains 28% below where it ended 2015.

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:

18/04/2016 EU 3,425,000 €5.38 -0.02 2.27
19/04/2016 EU 3,425,000 €5.47 -0.01 1.95
20/04/2016 UK 3,489,500 €5.46 0.00 1.91
21/04/2016 EU 3,425,000 €5.58 +0.01 2.52
22/04/2016 DE 3,495,000 €5.74 +0.07 2.04

 

And next week’s scheduled EUA sales:

25/04/2016 EU 3,425,000
26/04/2016 EU 3,425,000
27/04/2016 PL 3,526,000
28/04/2016 EU 3,425,000
29/04/2016 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 0.254% 0.606% 0.691% 0.863% 2017 €3.82/MWh +0.22
Dec-16 0.838% 0.834% 0.998% 2018 €3.32/MWh +0.35
Dec-17 0.831% 1.077% 2019 €3.36/MWh +0.23
Dec-18 1.318% (based on 38% efficiency factor)
(does not include transaction costs)

 

By Mike Szabo – mike@carbon-pulse.com

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