EU allowances rose on Tuesday after a strong auction result and favourable energy markets spurred buying, shrugging off bearish pressure after a Polish official said a 2021 MSR start remained part of governmental negotiations.
Benchmark Dec-15 EUAs climbed as much as 28 cents to a three-day high of €6.82 and settled on ICE at €6.78 to post a 3.7% daily gain.
Traders said the auction spurred enough buying to drive carbon above €6.60 and back into a long-term bullish channel, which drove further gains as traders grew more confident that higher prices would find support.
The EU’s sale of 2.9 million spot EUAs cleared 2 cents above market prices at €6.48 on EEX.
This defied bearish expectations, as previous sales cleared below secondary prices, forcing speculators back into the market to cover loss-making short positions.
Baseload German power prices also rose, up 18 cents to €32.05/MWh on EEX, which, with coal prices near nine year lows, was providing support for carbon as a strong profit incentive for coal-fired generators to ramp up production, one trader said.
Carbon briefly dipped during the afternoon after Poland’s State Secretary for the Environment Marcin Korolec said his country’s demand for a 2021 MSR start date “remained strong in the Council”.
He tweeted: “Expecting new text of MSR, Date 2021 staying strong in the Council. Other elements not so sure. Disappointing lack of text on carbon leakage.”
The market remains very sensitive to MSR developments and Korolec’s remarks were made amid speculation among observers that Poland’s grip on the negotiations was slipping.
If Poland lost the support of any one of the seven countries which have supported it on the 2021 date then the country would no longer have enough votes to block an earlier start to the supply-curbing measure.
A Monday meeting of officials from all EU states on the MSR failed to make clear headway on breaching a broadly west-east divide over whether the supply measure should start in 2017 or 2021.
Latvia, chairing the talks, last week tabled a compromise of a 2019 start that helped send prices tumbling to a year-low of €6.28 because it left out details on whether at least 600 million unallocated EUAs would immediately enter the reserve.
Traders are also awaiting a European Commission update due today on how many 2015 allowances have so far been freely allocated to industries.
On March 3, the EU executive said almost a third remained unissued, raising the possibility that the market would face further selling pressure once companies got hold of those units.
Meanwhile, normally very thinly-traded CER futures saw turnover of around 800,000 on ICE on the daily expiring and March vintages at prices of just €0.02. March 31 is the last day that ETS-regulated companies are able to the swap CERs or ERUs issued before 2013 for EUAs.
By Ben Garside – ben@carbon-pulse.com
