EU carbon prices fell 2.8% on Monday after a weak government auction result and a bearish outlook by analysts soured sentiment.
The Dec-15 EUA settled at €6.84 on ICE, down 14 cents on Friday’s settlement and near the bottom of the session’s €6.81-7.00 range on relatively healthy volume compared to quiet holiday trade last week.
The day’s turnover included a 2 million block trade on ICE’s rarely traded Dec-20 futures. A further 2 million went EFP on the Dec-2018 contract.
Carbon prices opened in negative territory and fell further after the EU’s auction of 2.9 million cleared three cents below market on EEX despite a steady bid-to-cover ratio of 2.34.
The auction’s mean bid price was equal to the clearing price for the second straight day, suggesting a reduction in low-ball bidding. This could be a sign that of a pick-up in demand from buyers versus mean bid price discounts of 4 cents, 8 cents and 17 cents over the previous three months.
Some 15.1 million EUAs are due to be auctioned this week, the highest total for the market to absorb since mid-March.
Carbon prices did not react to news that Poland sees a potential compromise between member states and the bloc’s Parliament on the MSR bill.
Carbon has been sensitive to MSR developments in recent weeks but analysts expect few substantial developments until negotiations resume on May 5.
Analysts at Thomson Reuters Point Carbon said technical signals would have more of a bearing on price direction in the absence of policy signals this week.
“The technical picture currently looks bearish after the recent break of several key support levels. A test of the support area around €6.80 will serve as the litmus test for the bearish trend in the market,” the analysts said in a weekly note.
Bernadette Papp, an analyst at brokerage Vertis, said carbon might also be sensitive to member states’ progress in handing out free allocations.
Some 297 million EUAs are still due to be handed out, mainly via industry allocations for 2015 from Finland, Italy and Poland, with a further 103 million from the five eastern states entitled to hand out 2014 EUAs to power companies.
“If all these allowances land in the market in the next less than three weeks, this additional supply might have a negative impact on the EUA price,” Papp said in a weekly note.
Meanwhile, Dec-15 CER prices gained 1 cent to €0.54 on ICE and have risen 26% for the month.
By Ben Garside – ben@carbon-pulse.com
