EU Market: EUAs fall further after rally but notch 3.5% weekly gain

Published 20:45 on April 29, 2016  /  Last updated at 22:51 on April 29, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices declined for a second straight day on Friday on profit-taking, falling further away from Wednesday’s three-month peak of €7.07 but still notching a weekly 3.5% gain.

European carbon prices declined for a second straight day on Friday on profit-taking, falling further away from Wednesday’s three-month peak of €7.07 but still notching a weekly 3.5% gain.

Front-year EU Allowance futures trading on ICE settled down 16 cents at €6.18, after a wild week that saw prices fluctuate in a €1.20 trading range.

Prices had been somewhat steady through much of Friday, but sold off in the last 90 minutes or so to close a cent above the intraday low.

Traders said this was likely the result of some market participants taking profit ahead of the weekend following several weeks of gains that have pushed the bellwether contract up by as much as 50%.

Volume was again heavy on Friday with 38.8 million units changing hands on the Dec-16s.  Some 21.3 million of that was done as block volumes, a large portion of which appeared to be linked to another block of 20 million done on the Mar-17s.

Excluding those two contracts, turnover down the rest of the futures curve was active with a total 6 million transacted.

EUAs had been trading higher early in the session, but prices started dipping in the hour before Germany’s spot auction ended, falling a bit further after the result was published.

The sale for 3.495 million units cleared at €6.29, matching the previous day’s 5-cent discount from the secondary spot market.

Friday’s auction, with 15 participants, also attracted two more bidders than Thursday’s number, which was the lowest seen in an EEX-hosted EUA auction since last August.

Though with total bids worth 5.8 million allowances translating into an oversubscription rate of 1.66, it was also only slightly better than Thursday’s participant interest levels.

Next week’s auction supply drops 40% to 10.4 million due to public holidays on Monday and Thursday.

EUA sale volumes then rise slightly to around 13.8 million units the following week, where they stay until mid-June.

“With May auctions bringing around 13 million tonnes less to the market, there should be some support for prices.  But a close eye will need to be kept on wider energy prices, which have been in the driving seat for much of this week,” Redshaw Advisors said.

German baseload power prices, which had seen similar steep gains over the past few weeks, also receded on Friday, with the front-year Cal-17 contract falling 25 cents to €24.65/MWh on EEX.

Combined with higher coal and a firmer euro, this trimmed the German clean dark spreads slightly, a day after they fell by as much as 17% due to plummeting power prices.

The Dec-16 EUA futures held above their 100-day moving average, which was pegged at around €6.07 on Friday, after climbing above it earlier this week for the first time since December.

The contract’s RSI also dipped back to 65, out of the 70+ ‘overbought’ zone.

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:

25/04/2016 EU 3,425,000 €5.92 +0.01 2.14
26/04/2016 EU 3,425,000 €6.08 -0.04 1.92
27/04/2016 PL 3,526,000 €6.94 -0.02 1.75
28/04/2016 EU 3,425,000 €6.64 -0.05 1.44
29/04/2016 DE 3,495,000 €6.29 -0.05 1.66

 

And next week’s scheduled EUA sales:

02/05/2016 HOLIDAY
03/05/2016 EU 3,425,000
04/05/2016 UK 3,489,500
05/05/2016 HOLIDAY
06/05/2016 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 0.507% 0.692% 0.735% 0.927% 2017 €3.65/MWh -0.20
Dec-16 0.809% 0.806% 1.017% 2018 €3.14/MWh -0.16
Dec-17 0.803% 1.120% 2019 €2.99/MWh -0.34
Dec-18 1.433% (based on 38% efficiency factor)
(does not include transaction costs)

 

By Mike Szabo – mike@carbon-pulse.com

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