EU Market: EU carbon climbs back after offset data dip

Published 10:44 on May 5, 2015  /  Last updated at 12:59 on April 25, 2016  / Ben Garside /  EMEA, EU ETS

EU carbon recovered somewhat on Tuesday afternoon on optimism that lawmakers would reach a deal on the MSR later today, after prices fell earlier in the day on the data released yesterday showing companies used fewer EUAs than expected to cover their 2014 emissions.

EU carbon recovered somewhat on Tuesday afternoon on optimism that lawmakers would reach a deal on the MSR later today, after prices fell earlier on data released showing use of fewer EUAs than expected for 2014.

Front-year EUAs settled 3 cents lower at €7.59 on somewhat light turnover of 10.6 million units, after trading in a range of €7.50 to €7.67 – the session high matching a two-month peak touched on Monday.

Late yesterday, the European Commission published data indicating EU ETS emitters had swapped 256 million UN offsets for EUAs to cover their 2014 output, higher than the 225-250 million range analysts had predicted and meaning fewer EUAs were handed in for last year.

Prices ignoreda  the strong demand seen at the first governmental allowance sale since last Thursday.

The EU sold 2.918 million spot allowances for €7.50 each, in line with secondary market prices when the auction cleared at 0900 GMT and almost five times oversubscribed with 13.7 million bids – the highest for an EEX-hosted auction since March 10.

EUAs bottomed out at €7.50 in the minutes after the auction, but started to climb back towards positive territory on the back of higher dark spreads and as hope grew that a deal on the MSR would be clinched today.

EU lawmakers reached an agreement after market close, but some traders downplayed the effect it would have on the market.

“It is possible there is some more MSR-based volatility, however with the largest (negotiation) stumbling blocks apparently out of the way, it is hard to see any real price direction coming from the talks,” said Redshaw Advisors in a note to clients.

“We now expect the market volatility caused by policy intervention will recede and EUA prices, which have stabilised around €7.50 over the last few days, will broadly trade around current levels for the next few months,” added analysts at Energy Aspects.

“The impact of the MSR will be greater at the end of this phase. Without the MSR, price levels would be expected to peak around 2017 and then fall back down to low single digits as unallocated and backloaded EUAs would all have to be sold in 2019 and 2020. Given the legislative package that we expect will be agreed, we forecast a path towards €21 by 2020,” Energy Aspects said.

European coal prices dropped by more than 1% on Tuesday and, coupled with a stronger euro, pushed German clean dark spreads back towards their highs for 2015.

Reduced government auction volumes of just over 9 million EUAs to hit the market this week could also help support carbon prices, traders said.

Meanwhile, Dec-15 CER prices settled 5 cents lower at €0.43 with 744,000 units traded, as the EU data revealed emitters had almost exhausted their entire offset usage entitlements for the 2013-2020 trading phase, meaning weaker demand for CERs up to 2020.

EU emitters have around 125 million of their estimated 1.6 billion-unit limit remaining – or roughly 21 million per year over the next six years, according to analysts at Thomson Reuters Point Carbon.

By Mike Szabo and Ben Garside –