European carbon prices climbed on Monday on the back of firmer power prices, reduced auction supply and as speculators anticipated the MSR getting final approval from EU member states this week.
Front-year EUAs closed at their session peak and a three-day high of €7.67, a gain of 10 cents on Friday’s settlement, with volume modest at around 11 million units changing hands.
Further out German baseload power prices, trading on EEX, were up by at least 0.5% each, rising from recent lows and providing support to carbon.
The MSR is to be ruled on by member states officials at their Coreper meeting on Wednesday as part of a formal passage into law by mid-July, with any chances of the bill being derailed at this stage viewed as remote.
Beyond that, market participants were anticipating another quiet week, especially as much of Europe will be closed to celebrate the Ascension Day holiday on Thursday.
“With prices having drifted sideways over the last week it is hard to see what will cause material price development through the week, unless we see some increased hedging and trade volume from the utilities,” Redshaw Advisors wrote in a note to clients.
“It is possible the market in the shorter term is driven increasingly by fundamental factors in the absence of political drivers. Given a full deck of positive price factors and no material advances it looks like the market is in no hurry to build on recent price gains.”
Traders also noted that fewer EUAs are being auctioned this week, and that May features the smallest auction volumes outside of holiday-disrupted August and December, putting less supply pressure on the market.
“In a period of typically high utility hedging, the lower-than-expected traded volumes would suggest either a change in hedging strategy from the utilities or a temporary wait and see approach being taken with MSR market reforms in full flow,” Redshaw added.
EUA prices hit a two-and-a-half-month high of €7.75 last Wednesday after the European Parliament, Commission and EU member states reached a deal to start the MSR in early 2019, but prices slipped back in the second half of the week as power prices fell and speculators booked profits.
“Following last week’s profit-taking, we think that market participants will resume the bullish trend that has constantly moved EUAs higher since mid-March,” analysts at Thomson Reuters Point Carbon wrote in a research note.
“We expect the Dec-15 contract to aim for a test of the €7.66 resistance line, highlighting the downside risk implied by the low Cal-16 German power.”
Technical analysts at Energycharts.de said the Dec-15 EUA contract continues to trade in an intact uptrend, adding that prices breaking above €7.90 – the 2015 year-to-date high hit in mid-February – would constitute a ‘triple top breakout’ and provide a buy signal.
By Mike Szabo – mike@carbon-pulse.com
