European carbon slipped on Tuesday as traders took profits following yesterday’s big price rise, despite rising German dark spreads and an EU auction that attracted a high number of participants.
Front-year EUA futures settled down 5 cents at €7.12 to end a quiet session that saw an 11-cent trading range between €7.06 and €7.17 and light volume of just over 11 million units. A further 2 million allowances were traded in EFP blocks on ICE’s Dec-18, Dec-19 and Dec-20 contracts.
“Volume has been limited despite this morning’s well-bid auction,” said one trader.
EU governments sold 2.918 million spot EUAs for €7.07 each, in an auction that attracted bids worth a total 7.342 million units from 24 participants – the most bidders since Feb. 2014.
The Dec-15 contract rocketed on Monday, gaining 4.2% after details emerged of a new MSR proposal from EU president Latvia, who is seeking a compromise agreement between east and west EU camps.
Traders also noted that stronger German clean dark spreads were supporting EUA prices this week.
The spreads rose for a fifth straight day on Tuesday, boosted by weaker coal and firmer German baseload power prices.
The calendar 2017 darks climbed back above €4/MWh for the first time in almost three weeks, while the calendar 2018 spread jumped to a 2015 high of €3.30/MWh, according to Carbon Pulse calculations, based on a 36% efficiency factor.
“(The German baseload power curve) is moving back into contango from being in backwardation,” the trader said, implying that nearer-term prices are becoming cheaper than ones for future delivery.
This was also helping to boost German dark spread values down the curve, but traders remained somewhat wary.
“Compared to what we used to see, it’s still pretty low, and I’m not sure that utilities will be excited by (spreads of) €3-4/MWh when we saw €7-8 a few years ago,” the trader said.
Expanding renewable energy capacity across Europe has helped push electricity prices lower, reducing profit margins for coal- and gas-burning utilities.
Carbon traders were also keenly awaiting news from today’s technical meeting between EU government officials regarding the MSR, but the event was not expected to yield any further progress towards agreeing a final blueprint for the MSR.
Traders are also anticipating EUA allocations ahead of the Apr. 30 EU ETS compliance deadline, as a number of governments have not yet handed out free 2014 EUAs to utilities and free 2015 EUAs to industry.
As a result, some in the market expect some last-minute allowance buying in the coming days, especially by those companies that were planning on borrowing from their 2015 quota to help cover their 2014 emissions.
By Mike Szabo – mike@carbon-pulse.com
