EU Market: EUAs climb on Greek optimism but higher coal, auction vols cap gains

Published 11:36 on June 22, 2015  /  Last updated at 15:06 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon prices closed higher on Monday after touching a five-day high of €7.56 on renewed optimism over Greece after the debt-riddled country offered new concessions ahead of an emergency eurozone leaders summit this evening.

EU carbon prices closed higher on Monday after touching a five-day high of €7.56 on renewed optimism over Greece after the debt-riddled country offered new concessions ahead of an emergency eurozone leaders summit this evening.

Benchmark Dec-15 EUAs ended 6 cents higher at €7.50 on moderate volume of 8.2 million units traded, having plumbed an intraday low of €7.43 in the first minutes of today’s Monday’s trade.

Prices climbed initially on the Greek news and a stronger euro, but receded after the EU’s allowance auction cleared below market with weaker-than-average interest, as European coal prices surged to a near three-month high.

The EU’s sale of 2.9m spot EUAs cleared 2 cents below market at €7.43 and was 2.4 times oversubscribed, below the month’s average for EEX-hosted sales of 2.91 and the year’s average of 3.26.

Governments will this week sell a total 15.1 million EUAs, putting more pressure on prices following last week’s auction volume of just under 12 million.

Major equity indices rose early on Monday after the anti-austerity Greek government said it had put forward fresh proposals to steer its path away from its crippling debt crisis, raising hopes of a last-minute deal to stave off creditors before a month-end deadline.

Some market watchers fear spreading unrest from a Greek exit that could weaken the euro and dampen economic prospects across the EU, damping demand for EUAs.

“If the saga revolving around the further bail-out and a potential default by Greece on its loans is not resolved by the end of the week, then some further selling of EUAs could occur,” said analysts at Energy Aspects in a weekly note.

“However, we do not think there is a considerable pool of largely speculative EUAs that could be dumped on the news, so the extent of the downward movement is likely to be limited.”

The analysts added that little upside was seen for EUAs in the near-term, with the market needing to see some sustained buying interest over the week to keep prices from slipping backwards.

“We generally expect EUA prices to drift gradually upwards over the coming months, although we think this week could struggle under the weight of the auction volumes,” they said, predicting that front-year EUA would remain near the bottom of a €7.30-7.70 trading range.

“Chances are we continue to be narrowly rangebound until something gives. Keep an eye on the Greek situation for its potential impact on USD/EUR, as movements either way could have an impact on carbon via the clean dark spread,” added Redshaw Advisors.

The euro briefly topped $1.14 early on Monday, but the bullish effect of that, coupled with higher German baseload power prices, was overpowered by rising coal prices, with the Calendar 2018 DES ARA forwards ascending above $60/tonne for the first since early April.

Coal’s gains knocked more than 1% off the German Cal-16 clean dark spreads, and more than 5% off the Cal-17s and 18s.

TECHNICAL SUPPORT

The Dec-15 EUAs are likely to only meet technical support if they fall as low as €7.20, according to Vertis analyst Bernadette Papp. In a weekly note, she pegged resistance at the €7.64 mark that the contract has repeatedly attempted to break over the past fortnight.

Dec-15 EUAs continue to consolidate within a narrow range inside a ‘pennant’ technical formation, with the upper band currently aligned with those resistance levels, and the lower band now hovering near the contract’s 23.6% Fibonacci retracement level (€7.40) and Monday’s low (€7.43).

Papp also noted that the bellwether futures’ MACD indicator has crossed the signal curve “to give a bearish sign to those traders who haven’t left for holidays yet”.

“The benchmark contract took a downward path last week (confirmed by the MACD crossing the signal curve). Should it continue into this direction, after touching the €7.37 local low from 8th June, the price has the room open until €7.20. Should the bulls take over the floor thanks to speculation on new documents from Brussels, the €7.64 level will be the first major resistance to overcome.”

Meanwhile, while steel production in the EU was up 0.7% in May compared to a year earlier, output for the first five months of the year was down by 0.1% versus a year ago, the World Steel Association said on Monday.

By Mike Szabo and Ben Garside – news@carbon-pulse.com

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