EU carbon fell below €7.50 for the first time in three sessions on Thursday as German power prices dropped sharply.
The Dec-15 EUA settled down 10 cents at €7.47 on ICE after briefly dipping to as low as €7.41, the benchmark contract’s lowest price so far this month.
Traders said the main driver was steep drops in year-ahead German power prices, which fell €0.42 to €31.50/MWh on EEX to approach a six-year low near €31.20, as projections of weak summer demand weighed further along the curve.
Coal prices also dropped, with the ARA Calendar 2016 contract down $0.70/tonne, limiting carbon’s bearish signal from power by helping to support profit margins for coal-fired generation.
“Power was putting carbon under pressure, we could have fallen a lot further but supply is fairly tight as the MSR deal has given industrials an incentive to hold on to their length,” one trader said.
While the MSR won’t start to curb supply until 2019, analysts expect prices to lift in anticipation and due to reduced auction volumes this year and next under backloading.
“With price forecasts suggesting prices will go up from here, I don’t think we will see many industrials willing to sell aggressively until prices reach €8,” the trader added.
Carbon fell despite strong demand at today’s EU auction of 2.9 million spot EUAs, which cleared 1 cent below market with 15.5 million bids.
Today’s auction demand was even higher than the 13.7 million at the previous EUA auction on Tuesday, and the heaviest since March 10. This week’s bidding has been well above the April average of 6.7m for EEX sales.
By Ben Garside – firstname.lastname@example.org