EU Allowances jumped to a two-week high above €7 on Friday as details of a German plan to force old coal plants to buy EUAs emerged and higher power and falling coal prices lent support.
The Dec-15 EUA futures closed at a session high of €7.12 – the highest level seen since Mar. 5 and 40 cents or 6% above Thursday’s settlement.
The benchmark contract finished the week 9.4% above last Friday’s settlement, but still slightly below February’s close of €7.15.
Volume on the Dec-15s was healthy at around 22.5 million units traded on Friday, while a notably high 21 million had been done EFP on the March-15 futures.
European coal prices fell to a fresh seven-year low as global supply continues to outpace demand. This, coupled with firmer German baseload power prices, helped to lift European clean dark spreads – the profit margins for the continent’s coal-fired power plants – back to levels not seen since January.
The German clean dark for calendar 2018 was just shy of €2.10/MWh at the time of writing, according to Carbon Pulse calculations.
Traders also said the market was encouraged by more details being released about Germany’s proposed rules to penalise old coal plants that would force them to buy more EUAs than they would otherwise need under the EU ETS.
Several analysts said the regulations, if approved in their current format, could help mop up excess supply in the market.
Traders also said that selling pressure on EUAs had eased somewhat on Friday, with one participant noting that a major seller over the past few weeks now appeared to have pulled back or exhausted sale stock.
A third trader noted that the Dec-15s approached but avoided testing their 200-day moving average around €6.52 earlier in the day, instead reversing course and breaking above their 20-day moving average around €6.95, which gave them the needed momentum to break above the €7 barrier.
The strength in EUAs fed through to CERs, with the Dec-15s ending up 1 cent at 41 cents.
By Mike Szabo – firstname.lastname@example.org