European carbon prices tiptoed higher on very light volume on Monday, as market participants predicted sideways trade for the remainder of the week despite a surge in allowances coming to market this week via auctions.
Front-year EUA futures ended near the session’s high, gaining 5 cents to €7.49 after trading in a narrow range between €7.37-7.50. Volume was very light at 6.5 million units traded.
“The technical picture looks fragile. In addition, auction volume this week increases by 6 million compared to last week,” said Bernadett Papp, an analyst at Budapest-based brokers Vertis.
“Our range for this week is therefore between €7.19 (a Fibonacci retracement level) and €7.59 (last week’s high). The Relative Strength Index (RSI) being in neutral territory at 53 suggests further sideways movement.”
European governments will sell more than 15 million spot allowances this week, well above the 9 million offloaded last week.
A group of around 25 EU member states kicked off this week’s sales by auctioning 2.918 million EUAs for €7.38 each. The auction attracted bids worth 8.8 million allowances and cleared 3 cents above market, helping to support prices.
“With a full week of auctions the supply side should be plentiful. However, five auctions in a week is not a first so there is no reason the market cannot cope with the volume,” Redshaw Advisors wrote in a note to clients.
The firm noted that the last time 15 million units were sold in a week, EUA prices only lost 10 cents week-on-week. However, as that was in mid-April, a larger decline may have been warded off by last-minute compliance buying.
“In the absence of this demand, the ability of the market to absorb the volume will be tested and some price softness is the most likely outcome. Overall there still looks to be little to significantly influence the price in either direction, and a range-bound week is again a probability.”
Redshaw predicted prices would oscillate between €7.20-7.70 this week.
“With the MSR plenary vote still four weeks away, there is nothing on the horizon that should drive prices in either direction aside from the usual,” it added, referring to supply and demand fundamentals.
Analysts at Thomson Reuters Point Carbon echoed this view:
“We are neutral on carbon this week amid sideways technical and policy signals and a lack of a clear direction from other drivers. Our technical signal this week is neutral as a result of last Friday’s doji candlestick.”
“Any volatility in the German power market remains a source of uncertainty,” they added.
German calendar-year baseload power prices displayed some weakness on Monday, with the front three years losing between 11 and 16 cents/MWh, or between 0.3% and 0.5%.
Their negative impact on German clean dark spreads was offset, however, by softer coal prices and a firmer euro, which helped lift the spreads back towards the one-month highs touched last week.
By Mike Szabo – firstname.lastname@example.org