EU carbon prices edged higher in quiet trade on Wednesday, as light last-minute buying by companies seeking to comply with the Apr. 30 EU ETS deadline was offset by selling on the back of narrowing dark spreads, which themselves were dented by higher coal and a slipping euro.
Front-year EUAs settled up 5 cents at €6.89 on ICE Futures Europe, with fewer than 6 million units traded.
“It’s quiet but there’s certainly some buying interest for (compliance) year-end, but it’s not sufficient to tip the market,” one trader said.
European calendar-year coal prices for delivery in the next three years added around 35-40 cents each, but the effect on utilities in the eurozone was amplified by a weaker euro, which made coal even more expensive for them.
The two factors combined to decrease German clean dark spreads for the same periods by around 35 cents, with the 2018 spread for less efficient plants trading around €2.22/MWh – a two-week low.
“There should be more utility buying as this is historically this is their time of year to get stuff done, but it’s been a bit lacklustre,” the trader said.
European utilities that forward sell their power have historically done the bulk of their selling in the first half of the year, but that pattern appears to be shifting amid lower profit margins and increased regulation.
Analysts have said weaker spark and dark spreads across Europe are causing utilities to reduce their hedging, which in turn means less demand for carbon.
Separately, looming regulatory restrictions on utilities’ trading activities may be prompting them to cut down on their hedging in order to stay within potential MiFID II thresholds.
Earlier on Wednesday, the UK government sold 3.123 million spot EUAs at auction for €6.77 each – a cent below market.
The sale attracted 14 bidders who submitted bids worth a total 6.169 million units – the lowest level for a UK auction since early March.
Meanwhile, front-year CER futures added 2 cents to 54 cents, re-testing the contract’s recent highs.
By Mike Szabo – firstname.lastname@example.org