EUA prices fell to their lowest level this year on Thursday after news emerged that EU Presidency Latvia was tabling a weaker MSR proposal in an attempt to broker a deal between divided member states.
The Dec-15 EUA contract trading on ICE Futures Europe dropped 10 cents €6.58 after Bloomberg quoted two anonymous sources saying Latvia had proposed putting backloaded allowances into the MSR when it is established in 2018, but then having the reserve become operational in 2021.
The benchmark carbon contract fell further and settled down 5.2% or 35 cents at €6.46 on heavy turnover of 23.2 million, almost double average daily trade earlier in the week.
Traders said the reaction was amplified by prices falling below a key support level around €6.60, which pushed carbon out of a bullish corridor in place since late last year and triggered further selling.
“I don’t think the MSR proposal itself was that new or surprising, but it triggered a fall and some people unwound their positions when we dropped out of what had been a well-established bullish channel,” said one.
The downward move pushed prices below €6.58, the contract’s 200-day moving average, which had not been breached since last September.
The Latvian proposal would mean 900 million EUAs currently due to come to market starting in 2019 would be withheld, but that any further oversupply in the EU ETS towards the end of the current phase would remain in the market later than it would under EU Parliament’s alternative proposal.
Carbon Pulse reported on Tuesday that a similar plan was being considered by some member states, after a meeting between officials from all EU nations on the issue failed to find a middle ground.
Traders said the proposal also looked weak because it would effectively postpone a decision whether at least 600 million unallocated allowances would be placed directly into the reserve.
They added that EUA prices were already down around 10 cents before the proposal emerged. largely due to the EU’s auction of 2.9 million spot EUAs clearing some 5 cents below the market.
“That was one of the weakest auctions this year. But other signals were really quite supportive today,” the first trader said.
He was referring to relatively firm German power prices versus declines in carbon and coal, which improved profitability for coal-fired generation, normally a bullish signal for carbon.
Year-ahead German baseload power dipped 15 cents to €32.20/MWh on EEX, while year-ahead DES ARA coal shed 20 cents to $59.20 per tonne.
By Ben Garside – firstname.lastname@example.org