EU carbon prices gained slightly on Friday in becalmed trade to leave the contract just a cent above last week’s close.
The Dec-16s settled up 4 cents at €5.85 on ICE, at the upper end of the day’s €5.72-5.89 range, on modest turnover of 11.5 million. Some 3.7 million units changed hands on other vintages.
The contract remained well within the week’s €5.65-6.16 range, the bottom of which was a three-week low touched on Tuesday, despite dipping following the day’s auction.
Prices dipped after Germany’s spot auction cleared 5 cents below market at €5.75, with bid coverage well below average at 1.53.
All four EUA sales this week had fairly weak demand indicators, clearing 2-6 cents below market with bid coverage averaging 1.80, well below the year-to-date average of around 2.15.
Next week’s auction supply ticks slightly higher to 13.83 million, up from 13.77 million this week, with no sale on Monday due to a public holiday across much of continental Europe.
Auction supply is then flat for the following two weeks.
ENERGY BEARISH
The signal from the energy complex was bearish on Friday, as German clean dark spreads gave back the previous session’s gains to end flat or below last week’s levels and well below the three-month highs reached on Monday.
The main reason was a dip in German power prices, with the Cal-2017 baseload contract ending down €0.20 at €24.35/MWh on EEX. A weaker euro also meant cheaper dollar-denominated coal was more expensive for continental utilities.
Big-emitting utilities this week reported in first quarter results that they were more deeply hedged that a year earlier, a factor that could prove bearish for carbon as they may opt to ease buying over the coming months.
Technical levels have grown in significance this week as fundamentals provide little direction.
Today’s settlement leaves the contract just above the Dec-16’s 100-day moving average of €5.84, which has provided support throughout the week.
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:
| 09/05/2016 | EU | 3,420,000 | €5.96 | -0.06 | 1.85 |
| 10/05/2016 | EU | 3,425,000 | €5.65 | -0.04 | 2.15 |
| 11/05/2016 | EU | 683,500 EUAAs | €5.72 | -0.13 | 4.59 |
| 12/05/2016 | EU | 3,425,000 | €6.04 | -0.02 | 1.66 |
| 13/05/2016 | DE | 3,495,000 | €5.75 | -0.05 | 1.53 |
And next week’s scheduled EUA sales:
| 16/05/2016 | EU | HOLIDAY |
| 17/05/2016 | EU | 3,425,000 |
| 18/05/2016 | EU | 3,489,500 |
| 19/05/2016 | EU | 3,425,000 |
| 20/05/2016 | 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 | 0.570% | 0.642% | 0.788% | 0.989% | 2017 | €3.74/MWh | -0.22 | |
| Dec-16 | 0.684% | 0.851% | 1.074% | 2018 | €3.53/MWh | -0.28 | ||
| Dec-17 | 1.019% | 1.269% | 2019 | €3.80/MWh | +0.09 | |||
| Dec-18 | 1.513% | (based on 38% efficiency factor) | ||||||
| (does not include transaction costs) | ||||||||
By Ben Garside – ben@carbon-pulse.com
