EU carbon dipped on Monday as analysts suggested prices may come under pressure from traders tempted to take profits on last week’s substantial gains.
The front-year futures on ICE ended down 8 cents at €5.89, amid heavier selling during the last 30 minues of trade and having eased back from a fresh three-month high of €6.09 hit earlier in the day.
The benchmark carbon contract rose 8.9% or 49 cents last week, with analysts predicting that the positive run might come to an end as traders look to lock in recent profits from long bets.
“We have a bearish outlook this week mainly because we expect speculators to take profit on the recent gains in the market,” said analysts at Thomson Reuters Point Carbon.
Bernadett Papp, an analyst at brokers Vertis, also pointed to indications that carbon was in over-bought territory.
“The RSI above 70 might warn of the possibility that some market participants could take the profit from their long positions in the coming days,” she said in a weekly blog post, adding that German power was in the same technical situation.
EUAs broke above €6 on Friday, rising in sympathy with German power prices and other peripheral energy products last week.
But the energy complex failed to give much direction on Monday. Later-dated German clean dark spreads strengthened further, mainly on falling coal prices, to hit their highest in several months.
Carbon prices were little changed around the EU auction, which cleared a cent above market at €5.92 and with near-average bid coverage of 2.14.
This week’s government auction volumes, at 17.3 million units, remain near the previous week’s levels. Sale quotas then drop to lower amounts for six straight weeks, before climbing back in mid-June.
BULLISH FACTORS
Despite their bearish tone, some analysts did not rule out further price hikes this week.
“Given the fact that this is the last week before the deadline for 2015 compliance expires, the price could rise further,” said Vertis’ Papp, referring to the Apr. 30 date.
She pegged the next strong resistance level at €6.28, the Jan. 29 intra-day high, with support at the previous resistance marks of €5.67, €5.50 and €5.35.
Clive Lambert of technical analysts FuturesTechs was also eyeing further EUA gains.
“Support cited at €5.36 did a job this time last week and the bulls got busy from here … Ideally we want to see €5.81-86 holding as support now to encourage further upside to our next target at €6.19, which is the 38.2% Fibonacci retrace of the losses seen between November and February,” he said.
“Above here €6.68 and €7.16 are the next upside targets. Bulls doing well.”
Point Carbon analysts said that colder-than-normal weather across parts of Europe this week could support prices, but doubted that any last-minute compliance buying would be enough to impact.
They also suggested that Thursday’s expected ruling at Europe’s highest court on whether the EU Commission handed out too many free EUAs could pose a bullish risk for prices.
“[The ruling] may have an impact on the amount of free allocation in phase 3,” they said.
In Nov. 2015, a top adviser to the court suggested to give regulators a year to draft a new free allocation plan to 2020 because too many free units had been handed out for phase three (2013-2020).
By Ben Garside – ben@carbon-pulse.com
