EU carbon follows other markets lower on Grexit worries

Published 09:18 on June 29, 2015  /  Last updated at 20:40 on October 24, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices tumbled on Monday, pulled lower as global markets slumped on news that Greece had ordered its banks shut until after next weekend’s snap referendum on the debt-riddled country’s future in the eurozone.

(Updates throughout following market close)

European carbon prices tumbled on Monday, pulled lower as global markets slumped on news that Greece had ordered its banks shut until after next weekend’s snap referendum on the debt-riddled country’s future in the eurozone.

Front-year EUA futures fell to as low as €7.25 – a near one-month low – in the first two hours of trade before climbing back to €7.47 by midday London time.

However, sellers returned in the final 90 minutes of trade, pushing the bellwether Dec-15 contract back down to end the day at €7.37, 18 cents or 2.4% off Friday’s settlement.

Activity was heavy at more than 16 million units changing hands.

Market participants said prices pared their losses in part due to a recovering in the euro against the dollar, and in part due to the perception that the early EUA sell-off was not totally justified.

“It seems to me that this market is just reacting to a possible Grexit rather than doing the homework required as to what it would mean in terms of actual impact to the EU ETS. Prices are more likely moving for sympathetic reasons rather than for assessment-justified ones,” said Paolo Coghe, a Paris-based analyst with Societe Generale.

The euro clawed back into positive territory against the US dollar after trading as low as $1.096, bolstered by the Swiss National Bank’s announcement that it had intervened in the market to weaken its currency.

Monday’s price drop completely wiped out last week’s 1.5% gain in the Dec-15 EUA futures, which once again failed to break above the €7.64 resistance level that has plagued bulls this month.

“A push higher last week would suggest strong underlying demand, however, the resistance level of €7.64 also looks to be a sizeable hurdle,” said Redshaw Advisors in a client note.

“With Grexit storm clouds growing by the day there is possibly a return to volatility on the horizon. The Greek crisis is likely to limit any upside in the market as the turmoil looms.”

The Greek government on Sunday announced it would close the nation’s banks on Monday to prevent a run on them, after the European Central Bank pulled the liquidity lifeline that has kept Greece’s banking sector afloat for months.

The Athens Stock Exchange also remained shut on Monday, as the Greek population prepares to go to the polls on July 5 to effectively vote on whether to remain in the eurozone.

But a handful of analysts interviewed by Carbon Pulse broadly agreed that a so-called Grexit, while potentially threatening to the euro and Greece’s neighbouring economies, would have little impact on EUA prices or the wider EU ETS.

Meanwhile, German power, UK gas and DES ARA coal all posted modest losses on Monday.

The Dec-15 EUAs finally broke to the downside of a technical ‘pennant’ formation that had contained trade for the past few months, which had its upper band aligned with Friday’s top price of €7.63, and the lower band near €7.45.

As well, the Dec-15s at one point were below their 50- and 100-day moving averages, their 23.6% Fibonacci retracement level, and their lower Bollinger Band, providing additional bearish signals to the market.

“Over the coming week, price developments are likely to see little upside as the Greek issues should keep the more speculative capital at bay,” said analysts at Energy Aspects, adding that lower auction volume this week could help ease downward pressure on EUAs.

Governments are due to auction around 12 million this week, compared to some 15 million last week.

The EU auctioned 2.92 million spot units for €7.36 each earlier, in a sale that cleared 2 cents below market and attracted total bids worth 11.5 million tonnes.

CERs saw quite a bit of activity as well, with 317,000 done on the Dec-15s, and a further 250,000 on each of the Dec-16s and Dec-19s.

The front-year CER futures closed down a cent at 38 cents after trading as high as 43 cents.

By Mike Szabo – mike@carbon-pulse.com

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