European carbon prices continued to climb on Tuesday after the previous day’s stellar rise, notching a 3.3% gain on the back of a bullish energy complex and after EUAs hit their highest since mid-January.
The front-year futures trading on ICE settled up 22 cents at €6.84 having retreated from the intraday peak of €7.07 touched several times in morning trade. Prices are now up 23% in the last week and 43% over the past month.
Volume on the benchmark contract was again heavy at 33.8 million tonnes, a day after some 43.7 million changed hands on the Dec-16s as they rose by 13%, the most in over three years.
A further 5.2 million units were traded along the rest of the EUA futures curve on ICE, the majority of which was on the Dec-17 and 18 contracts.
German baseload power prices also continued their rise, adding around 30 cents/MWh or more than 1% across the board.
This, combined with a dip in European coal prices and a firmer euro, boosted the German dark spreads to their highest since early February, whetting utilities’ appetite for carbon.
Traders said the gains continued to be driven by speculators, though there has been some evidence of utility buying on the later-dated EUA futures.
Prices were briefly knocked lower by Poland’s EUA auction, but quickly recovered.
The country sold 3.53 million spot allowances for €6.94 each, in a sale that attracted 15 participants who collectively submitted bids equivalent to a total 6.16 million tonnes.
That translated into a bid-to-cover ratio of 1.75, which was the lowest seen in a Polish auction so far this year.
OTHER FACTORS
Market participants also rebuffed claims from some onlookers that this week’s gains were linked to a French proposal to implement a unilateral carbon floor price or news that an MEP from the European Parliament’s industry committee may push for steeper post-2020 ETS cap cuts.
“The French story is being pushed by banks and brokers, who are broadcasting it to the market saying it’s very bullish, but it’s over-exaggerated and at most is actually slightly bearish,” one trader said.
“[Scottish MEP Ian] Duncan’s proposal has at most unnerved some shorts,” another trader added, suggesting that the news prompted them to buy back bearish bets.
A number of market participants have noted that there is little in the way of news or fundamental changes to support such a large rally, and they raised the prospect of a price correction in the coming days.
Such a view is also supported by EUAs’ technical indicators. The Dec-16 contract’s RSI indicator topped 80 on Wednesday, the highest level recorded since 2014 and well above the 70-level that can indicate prices are overheating.
Today’s high put the Dec-16s at two-thirds of the way back to their 2015 year-end level of €8.29, after they bottomed out at a two-year low of €4.62 in February.
Those losses were blamed on big speculative short-sellers pouncing while carbon was vulnerable and on changing hedging patterns at some utilities, and exacerbated by a few large industrials dumping allowances to raise cash.
By Mike Szabo – mike@carbon-pulse.com
