EU Market: EUAs hold above €7 amid analyst warnings on MSR deadlock

Published 17:50 on March 23, 2015  /  Last updated at 14:59 on May 11, 2016  / Ben Garside /  EMEA, EU ETS

EU carbon prices ended unchanged on Monday after a choppy session two days before crunch governmental talks on the MSR.

EU carbon prices ended unchanged on Monday after a choppy session two days before crunch governmental talks on the MSR.

The Dec-15 futures settled at €7.09 on ICE after slipping from a fresh three-week high of €7.17, which topped the previous session’s peak by five cents.

The benchmark carbon contract gained almost 9% last week partly in anticipation of a deal being struck on the MSR and a German government plan to force the country’s ageing coal and lignite power plants to buy more EUAs.

Yet, carbon held its ground on Monday despite analyst warnings that the MSR talks may yield no immediate breakthrough and fierce opposition to Germany’s idea that could hamper its passage into law.

Analysts at Thomson Reuters Point Carbon were doubtful that EU government officials would reach a compromise on the MSR at scheduled talks on Wednesday, and said this would keep bearish pressure on EUAs this week.

“A compromise between members states during Wednesday’s Coreper meeting seems unlikely, meaning further delays in the process,” the analysts said in an emailed outlook note.

Poland and seven other nations have objected to moves by 15 mainly western member states to introduce the MSR earlier than 2021.

Signs of a fresh compromise proposal by chairing nation Latvia have yet to emerge, quelling any buy signal for speculators that they can agree a position to begin final negotiations with the EU Parliament on the bill.

“Traders (could) adopt a wait-and-see mood before the meeting, as country opinions seem to diverge more than was the case among the political groups before (February’s EU Parliament committee) vote, when it was clear that there was a broad support for a more ambitious design of the MSR,” said Bernadette Papp, an analyst at Budapest-based brokers Vertis, in a weekly note.

She said if this happened, carbon may stay within the 30-day and 200-day moving averages, currently at €7.04 and €6.72 respectively for the Dec-15 contract.

However, if governments reach an MSR deal on Wednesday, carbon could break above that level and could easily reach the next major technical resistance level of the upper Bollinger band around €7.45-50, she added.

Carbon was also supported on Monday by gains in baseload German power prices, which increased the 2018 clean dark spread – a measure of profitability for the country’s coal-fired plants-  to around €2.56/MWh from around €2.10 on Friday.

By Ben Garside –