EUAs nudged closer to €7 on Tuesday as smaller buyers entered the market to help reverse losses in the wake of a weaker-than expected auction that saw European governments wrap up their busiest allowance sale month since Feb. 2014.
The Dec-15 contract settled up 4 cents or 0.6% on ICE at €6.97 – off the session high of €6.99 – after rebounding from a morning floor of €6.75.
Traders reported a pick-up in buying orders from mid-sized companies keen to square off their annual compliance requirements following today’s deadline for submitting 2014 emissions figures.
“With the market below €7, they felt it was a good time to buy, if only in small volumes,” said one trader.
A second trader said speculators were keen to prop up prices ahead of what is likely to be bearish 2014 emissions data published by the Commission on Wednesday, though others said they expected little market reaction if the figures came in near expected levels of 5.5% down year-on-year.
Tuesday’s EU auction for 2.9 million units cleared at €6.79, 12 cents below the front-year futures and 7 cents below the spot market at the time the auction’s bidding window closed.
However, buyers had pushed the benchmark futures up in the minutes before the auction ended, meaning prices held some ground until just after 0930 GMT, when selling pressure was ratcheted up and EUAs hit their intraday lows.
The auction – the final sale for Q1 – had a fairly healthy bid-to-cover ratio of 2.32 but contrasted sharply to Monday’s sale, which cleared 3 cents above the spot market.
EU governments sold 62.7 million spot EUAs in March – the most in 13 months – for an average price of €6.73 each, raising €422.1 million.
The 21 auctions held this month appeared to showcase strong interest, attracting an average of nearly 19 bidders per sale – the highest level since Feb. 2014.
The mean bid price across the auctions was just 4 cents below the sale price, well below the 17-cent and 8-cent average discounts seen in January and February respectively.
But the buyers’ individual appetites seemed smaller than usual, as March’s auctions featured an oversubscription rate of 3.22, down from the 3.64 seen in the first two months of the year and the 4.9 recorded in 2014’s sales.
In fact March’s subscription rate was the lowest since Sept. 2013, according to data compiled by Carbon Pulse. This may have been a result of the increased volumes.
That said the stats could also show a reduction in so-called “piss-taking” bids, or those that are set at unrealistic prices or that seek quantities in excess of a buyer’s actual needs, which are entered in an attempt to influence the market.
Governments are due to sell a further 54 million spot EUAs in April.
By Mike Szabo and Ben Garside – mike@carbon-pulse.com
