EU Market: EU carbon holds up despite bearish factors

Published 17:27 on June 23, 2015  /  Last updated at 15:06 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices held their ground on Tuesday despite a collection of bearish factors including a weaker euro, receding gas prices and a multi-month low in German dark spreads.

European carbon prices held their ground on Tuesday despite a collection of bearish factors including a weaker euro, receding gas prices and a multi-month low in German dark spreads.

Dec-15 EUA futures settled 2 cents higher at €7.52 on ICE Futures Europe after trading in a narrow range between €7.47 and €7.54.

Volume on the benchmark contract was on the light side at fewer than 8 million units traded.

“The euro is very weak and dark spreads are under pressure, so I’m surprised EUAs are still holding up,” one trader said.

The euro fell to a two-week low below $1.12 as debt-riddled Greece neared a deal with its creditors, prompting speculators to ramp up bets on riskier currencies as eurozone tensions eased.

This, coupled with firmer coal and carbon, slashed between 10% and 12% from calendar-year German clean dark spread values, sending them to their lowest levels in several months.

British wholesale gas prices also fell after the Dutch government, acting on concerns over an increase in local earthquakes and subsequent property damage, ordered a further tightening of production at its Groningen gas field, Europe’s largest, confirming rumours that had caused prices to jump on Monday.

Lower gas prices are seen as bearish for carbon because it means the fuel, which is less CO2-intensive than coal, is cheaper to burn for utilities, thereby dampening EUA demand.

Higher allowance auction volumes this week are also expected to weigh on EUA prices, though Tuesday morning’s sale had the opposite effect.

The EU’s sale of 2.92 million spot units cleared at €7.45, some 2 cents above market, in an auction that attracted bids worth 11.66 million EUAs – the most in a week.

This caused prices to crawl back into positive territory after being lower during the auction’s bidding window.

“The big question is whether prices can hold with decent supply coming for the rest of the week and low dark spreads,” the trader said.

Governments are due to sell a further 9.2 million allowances this week, before numbers fall back to 11.95 million next week.

The Dec-15 EUAs remain wedged inside a ‘pennant’ technical formation, with the upper band currently aligned with resistance levels near €7.64, above which prices were unable to climb during multiple attempts over the past fortnight. The lower band is pegged near €7.40, the contract’s 23.6% Fibonacci retracement level.

Meanwhile, activity down the EUA futures curve was busier than normal on Tuesday, with more than 2.1 million units done on the Dec-18s, and 352,000 on the Dec-19s.

In addition, a single lot of 1,000 CERs was traded on the ICE Dec-15 futures for 36 cents each, some 4 cents below Monday’s settlement.

By Mike Szabo – mike@carbon-pulse.com

Comment