EU carbon turned upwards on Wednesday following four straight days of losses, bolstered by a strong UK auction in the face of analyst warnings of a dip in utility buying.
The Dec-16 EUA futures settled up 14 cents at €6.13 on ICE, near the middle of the session’s €5.91-6.29 range, on fairly heavy turnover of 20.3 million.
The benchmark contract clawed back all of Tuesday’s losses but still remains a long way from the €7.07 three-month peak touched a week ago, which many market participants said was largely the result of speculative short-covering.
Prices jumped around 7 cents after the UK auction’s bidding window closed at 0900 GMT and spurred gains until hitting the day’s high mid-afternoon.
The sale cleared six cents above market, in stark contrast to the previous five auctions clearing at a discount. Its near-average bid coverage of 2.13 was also rare for the ICE-hosted UK’s sales, which have tended to attract fewer bidders than EEX-hosted sales.
Analysts at Energy Aspects said in a weekly market report published on Tuesday that they expected prices to trade near to €6 this week, but warned that the warmer weather outlook could dampen utility buying.
“With the unseasonably cold weather starting to ebb, some of the utility spot buying is likely to fade. However, May is a month with limited auction values, so if the support falls away here, then even the slight upside that we expect from the gradual market tightening could be delayed,” they added.
“We anticipate much less of large proprietary position taking for a while, with holders of both long and short positions having been burnt by the volatility in the prices. Given this, once the market settles, sideways trading should reappear.”
Brokers Consus – the French arm of which is being tried in a French court after being accused of facilitating up to €1.4 billion in carbon VAT fraud – raised its average EUA price forecast for Q2 to €6.02, up 14% on its Mar. 31 forecast of €5.29.
It said the revision was due to decisive moves up for both EUA and power prices, which have “restored” EUAs to their steadily upward trend.
By Ben Garside – ben@carbon-pulse.com
