EU Market: EUAs post 7% weekly gain on compliance deadline rush, earlier MSR start hopes

Published 18:39 on April 24, 2015  /  Last updated at 12:57 on April 25, 2016  /  EMEA, EU ETS  /  No Comments

European carbon allowances gained 4 cents on Friday to end 7% above last week’s close, as bullish sentiment surrounding an impending new MSR proposal from Latvia and more last-minute buying before next week’s compliance deadline helped support prices.

European carbon allowances gained 4 cents on Friday to end 7% above last week’s close, as bullish sentiment surrounding an impending new MSR proposal from Latvia and more last-minute buying before next week’s compliance deadline helped support prices.

Front-year EUA futures closed the week at €7.33, some 49 cents above last Friday’s settlement.

Volume on the benchmark contract on Friday was moderate at around 14 million units traded.

The Dec-15 futures touched a fresh two-month high of €7.40 in the first two hours of trade on early buying before drifting lower throughout the morning.

Prices then rose back toward the session peak after news emerged that, according to sources, Latvia would propose a 2019 start date for the MSR in a new draft negotiating text to be disseminated to EU member states on Friday.

The sources said the new proposal from the current EU presidency holder is meant to “test the appetite” of some eastern European countries for a slightly earlier start, while trying to keep western governments and MEPs, which respectively favour 2017 and 2018 starts, at the negotiating table.

“That was a bit bullish, and if this proposal emerges it could give further impetus to a market that already looks quite bullish,” one trader said.

EU member state officials are due to discuss Latvia’s latest proposal on Apr. 29, before meeting with MEPs and the European Commission on May 5 for trilogue talks.

LAST MINUTE CLUB

EUA prices dipped back toward €7.30 in the final hour of trade on Friday as some speculators took profits to end the week.

Traders said Friday’s gains were also supported by last-minute buying by some companies seeking allowances before the Apr. 30 EU ETS compliance deadline, a factor that fuelled Thursday’s near 3% rise.

Not all EU member states have finished handing out free 2015 allowances to industry, an annual event that is meant to be done before the end of February.

Poland completed its allocation of 55.4 million EUAs on Friday, while Italy and Finland also started the process earlier in the week.

However, more than 300 Italian industrial installations have been warned by their government that they are at risk of not getting their 2015 permits before the deadline – news that caused some operators to “panic” and spurred buying.

A source in Finland added that some installations there had also tapped the market because they hadn’t received their permits.

Meanwhile, Germany’s auction for 3.2 million spot EUAs earlier on Friday cleared at €7.27 each – 2 cents below market – capping a week that saw nearly 11.95 million units sold.

Governments will sell a further 11.88 million units next week, before auction quotas slide to 9 million the following week.

Higher coal prices offset a stronger euro and firmer German power prices to push German clean dark spreads down slightly.

Implied EUA carry trade annual returns German clean dark spreads
Dec-15 Dec-16 Dec-17 Dec-18 Cal Yr Price Wk chg
Spot 0.858% 0.991% 1.280% 1.548% 2016 €4.37/MWh +0.05
Dec-15 1.093% 1.424% 1.695% 2017 €3.99/MWh +0.26
Dec-16 1.757% 2.012% 2018 €3.31/MWh +0.56
Dec-17 2.258% (based on 36% eff. factor)
(does not include transaction costs)

 

By Mike Szabo – mike@carbon-pulse.com

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