European carbon prices jumped almost 3% to a two-month high on Thursday on the back of last-minute compliance buying and as speculators placed bullish bets ahead of the next fortnight’s MSR meetings, traders said.
The bellwether Dec-15 EUA futures on ICE Futures Europe ended the day up 16 cents at €7.28, near the day’s peak of €7.31 – the highest level since late February.
Volume on the front-year contract was strong at more than 22 million units traded, while a further 5.3 million were collectively transacted on ICE’s daily and Apr-2015 futures – the only two EUA contracts that would allow last-minute buyers to meet the looming Apr. 30 EU ETS deadline.
Traders said today’s price rise was partly fuelled by buying on the near-term contracts by companies trying to pick up EUAs before next week’s cut-off date to hand in allowances to cover 2014 emissions.
“Some utilities in one of the countries that didn’t receive their (2014 free) allocation yet started to buy… all of them have big utilities that could buy 10 million in an hour,” one trader said.
“We have five more trading days until the deadline, so maybe they got tired of waiting (and wanted) to be better safe than sorry,” he said, adding that the market should then anticipate those firms offloading any EUA allocation they receive post-deadline.
According to an Apr. 15 update from the European Commission, Bulgaria, Lithuania and Poland had yet to hand out up to 84.4 million free allowances to their utilities for 2014 under the EU’s initiative to help eastern Europe modernise its power sector and avoid electricity price spikes.
After the market closed on Thursday, the Commission published a further update that showed the three countries had been cleared to hand out 63 million EUAs. This means the eight eligible countries had requested to allocate only 78% of their entitled amount.
In addition, governments including Italy, Poland and Finland, as of Apr. 14, also had yet to hand out nearly 200 million free EUAs to their heavy industry for this year’s emissions.
Some industrial manufacturers are reported to have previously borrowed from their next year’s quota to comply with the EU ETS, meaning they will desperately need their 2015 allocation ahead of month’s end to cover their 2014 emissions.
In another sign that some smaller and medium-sized firms may have been buying last minute via brokers today, nearly 1.4 million units were traded EFP across the EUA futures curve on ICE, including 300,000 units done on the Dec-19s.
“We’d been bumping up against resistance for the last 3-4 sessions. Technicals look good, and perhaps sellers finally got exhausted,” another trader said.
The Dec-15 futures had failed to break above the €7.16-7.18 level in the first three sessions of this week.
Both traders said bullish speculators also contributed to today’s rise by going long in anticipation of an agreement over the MSR amongst EU member states at the Apr. 29 Coreper meeting and subsequent May 5 trilogue talks.
Analysts have said a strong agreement could push prices above €8 in the near-term.
Meanwhile, European coal and German baseload power prices were mostly flat on Thursday, helping to squeeze the German darks spreads slightly with the EUA rise.
By Ben Garside and Mike Szabo – firstname.lastname@example.org