EU carbon prices retreated by as much as 8.3% on Thursday after hitting a near three-month high in the previous session, pulled lower by falling power prices and a very poor auction turnout.
The benchmark Dec-16 EUA futures trading on ICE ended down 47 cents or 6.9% at €6.37, on heavy volume of 30.5 million units changing hands.
Prices hit an intraday low of €6.27 around an hour before the market’s close, a ways away from both their session peak of €6.90 and the previous day’s high of €7.07.
One trader attributed the drop to speculative profit-taking following the large price increase recorded in the past few weeks.
“Today we saw a reversal in the fortune of power … [and] it is likely there was a large amount of profit taking following the failure to hold onto gains yesterday when carbon rose above €7.00,” added Redshaw Advisors.
Calendar-year baseload power prices across some of Europe’s biggest emitting countries were also down markedly on Thursday, posting losses of as much as 6% following a week of strong gains.
Exchange operators German bourse EEX earlier in the day warned participants that it was experiencing a rare ‘fast market’ situation in its Italian power futures, meaning it was witnessing high price fluctuations within a short period of time.
Meanwhile, Winter 2016 UK gas posted an even larger 6.6% drop, also following recent big rises, while front-year European coal dipped by less that 1% and Brent crude was up around 50 cents to $47.68/barrel.
Combined, this slashed as much as 17% of the calendar-year German clean dark spreads, which had hit two-month highs earlier this week.
The EU auction for 3.425 million EUAs also failed to provide any support for carbon prices after it cleared at €6.64, some 5 cents below the secondary spot market, which was the largest discount seen in a government EUA sale since early April.
The auction attracted a low turnout of 13 participants – the fewest for an EEX-hosted auction since last August – who collectively bid for a total 4.9 million units.
Translating into an oversubscription rate of 1.44, it was also the lowest level of bidding interest for such a sale since Apr. 2013.
“It shows that at these prices, bidders aren’t so interested,” the trader added.
EEX said the auction’s mean bid price was €6.29, which was 35 cents below the clearing price – the largest differential since last June.
Despite Thursday’s decline, the bellwether EUA contract is still up % for the week, after posting a similar rise last week.
The Dec-16s are also up by roughly a third in the past month and some 40% from their two-year lows of €4.62 hit in February, but they remain more than 20% below their end-2015 close of €8.29.
A number of traders had warned that the EU carbon market could be for a correction as there appeared to be little logic behind the recent price spike.
“The market needs to find some stability before a call can be made on where prices are likely headed next. With speculator activity high at the moment, sharp moves in either direction remain a possibility,” Redshaw Advisors added.
By Mike Szabo – mike@carbon-pulse.com
