EU Market: EU carbon levels off near €7.50 as traders see gap to MSR effect

Published 10:32 on May 8, 2015  /  Last updated at 12:59 on April 25, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices were little changed week-on-week after slipping from a midweek two-month high as initial optimism over a strong MSR deal gave way to a balanced short-term outlook.

EU carbon prices were little changed week-on-week after slipping from a midweek two-month high as initial optimism over a strong MSR deal gave way to a balanced short-term outlook.

The Dec-15 EUA ended up 8 cents on the previous ICE settlement at €7.55, just 3 cents higher week-on-week despite lawmakers sealing a landmark MSR deal to curb future supply that was considerably stronger than analysts had been expecting.

“In the longer term the outlook from the MSR is very positive for carbon but apart from some initial excitement there isn’t enough to change the outlook for the next few months,” one trader said.

The anticipation and the eventual clinching of a strengthen MSR proposal by lawmakers late Tuesday helped push carbon to the week’s peak of €7.67.

Following the deal, bearish pressure from profit-taking was largely offset by new speculative buying as the downside risk due to MSR has largely passed.

Traders also said support was provided by a lack of supply from industrial companies with surplus units to sell. They are now holding out for prices above €8, which some analysts expect by the end of the year.

Today’s German government sale of 3.1 million spot EUAs cleared 4 cents below market at €7.43, immediately pulling down secondary Dec-15 EUA prices by the same amount.

All three spot EUA auctions this week have drawn volumes far higher than April’s average of 6.7 million for EEX-hosted sales.

Excluding Wednesday’s EUAA sale, demand was squeezed into just three auctions totalling 8 million, down from almost 12 million a week earlier.

Next week’s auction volume returns to those levels, with 12.16 million EUAs on offer across four auctions and no EEX sale on Thursday due to a public holiday.

Implied EUA carry trade annual returns German clean dark spreads
Dec-15 Dec-16 Dec-17 Dec-18 Cal Yr Price Wk chg
Spot 0.883% 0.981% 1.206% 1.443% 2016 €4.33/MWh +0.01
Dec-15 1.057% 1.312% 1.555% 2017 €4.03/MWh +0.08
Dec-16 1.569% 1.819% 2018 €3.68/MWh +0.15
Dec-17 2.059% (based on 36% eff. factor)
(does not include transaction costs)

 

By Ben Garside – ben@carbon-pulse.com

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