EU Market: EUAs decline on power losses to post 5.2% weekly loss

Published 18:21 on May 6, 2016  /  Last updated at 00:32 on May 7, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices slipped on Friday amid weaker German power prices to put the contract on the brink of technical support levels that analysts say could trigger further falls if breached.

EU carbon prices slipped on Friday amid weaker German power prices to put the contract on the brink of technical support levels that analysts say could trigger further falls if breached.

The Dec-16 EUA contract settled down 34 cents or 5.5% at €5.86 on ICE, near the bottom of the day’s €5.84-6.22 range after gradually slipping away following Friday’s auction at 0900 GMT.

Volume was healthy at 18.4 million, which represented over 80% of all EUAs traded on the platform.

“It looked a bit of a speculative move up yesterday, so those [positions] got closed ahead of the weekend,” said one trader.

The downward move was of the same magnitude as the week-to-week loss, with prices briefly rallying on Thursday amid a jump in energy markets and bullish sentiment fuelled by news that Germany was considering supporting moves to put a minimum price on EUAs.

That sentiment faded on Friday as it emerged that Germany was still considering several ways to strengthen the EU ETS as part of its 2050 Climate Plan.

Carbon has now returned to the strong technical support levels of €5.81-86 flagged by analyst Clive Lambert of FuturesTechs earlier this week as a “last chance saloon” for prices.  He said a break below this could plunge prices back towards the year’s lows of €4.62.

The signal from the energy complex was also bearish as calendar 2018 and 2019 German clean dark spreads were knocked from their multi-week highs of Thursday as German power price losses eclipsed the falls in carbon and coal.

Yet, week-on-week the signal was bullish. While the 2017 spread was flat, the 2018 and 2019 vintages were up 10.5% and 8.9% respectively and at their highest week-end levels since Feb. 5, boosting the incentive for utilities to sell power and buy the corresponding carbon.

Earlier on Friday, prices dipped around Germany’s spot auction, which cleared at 5 cents below market at €6.13 and with bid coverage of 2.05, slightly below the year-to-date average.

That capped an odd holiday-disrupted week for auction indicators, with the clearance price varying between an 8-cent market discount and a 6-cent premium in the week’s two other sales.

Auction supply climbs by almost a third next week to 13.77 million, with an additional 683,500 EUAAs sold by the EU on Wednesday. That level of EUA sales is roughly maintained until mid-June.

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:

02/05/2016 HOLIDAY
03/05/2016 EU 3,425,000 €5.88 -0.08 1.82
04/05/2016 UK 3,489,500 €5.97 +0.06 2.13
05/05/2016 HOLIDAY
06/05/2016 DE 3,495,000 €6.13 -0.05 2.06

 

And next week’s scheduled EUA sales:

09/05/2016 EU 3,425,000
10/05/2016 EU 3,425,000
11/05/2016 EU 683,500 EUAAs
12/05/2016 EU 3,425,000
13/05/2016 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 0.275% 0.527% 0.650% 0.888% 2017 €3.98/MWh +0.03
Dec-16 0.683% 0.765% 1.016% 2018 €3.79/MWh +0.36
Dec-17 0.847% 1.183% 2019 €3.67/MWh +0.30
Dec-18 1.513% (based on 38% efficiency factor)
(does not include transaction costs)

 

By Ben Garside – ben@carbon-pulse.com

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