EU Market: EU carbon posts 1.3% weekly loss as traders prepare for July 8 MSR vote

Published 17:19 on July 3, 2015  /  Last updated at 15:08 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

EU carbon barely budged on Friday to post a 1.3% weekly loss as trade focused mainly on time spreads, while traders prepared for developments in Greece this weekend and next Wednesday’s MSR vote.

EU carbon barely budged on Friday to post a 1.3% weekly loss as trade focused mainly on time spreads, while traders prepared for developments in Greece this weekend and next Wednesday’s MSR vote.

The Dec-15 EUA contract ended down a cents at €7.45, a 10-cent week-on-week loss following three consecutive sessions of rangebound trade.

The front-year futures traded between €7.43-7.48 on relatively healthy turnover of around 11.5 million. The contract has been stuck between €7.42 and €7.53 since Tuesday.

A large part of Friday’s volumes on ICE were time spreads, with 3.2 million done between the Dec-15 and Mar-16 futures, and another 1.2 million involving the front-year contract and either the Dec-16s or 17s.

A further 14.5 million units changed hands via block trades, in what appeared to be strip trades or more time spreads.

German clean dark spreads were little changed on Friday as a dip in baseload power was offset by weaker coal for delivery in Europe.

EUAs recovered from Monday’s drop to €7.25, which was triggered by worries over Greece’s debt crisis.

While those fears subsided, traders were still wary of the results of Greece’s referendum this Sunday, which is asking voters to decide whether the beleaguered country should accept their creditors’ latest repayment terms.

“I think traders are still cautious before this referendum,” one trader said, adding that the increased stability brought about by a ‘yes’ vote might push EUA prices back towards their recent resistance level of €7.64. Prices have failed numerous times to break above that level in the past few weeks.

Some also expected EUA prices to move ahead of next week’s final parliamentary vote on the MSR. Although its adoption is widely expected, approval by lawmakers could drive activity by increasing certainty in the market.

The full EU Parliament sits in Strasbourg next week and will debate the MSR during a Tuesday evening session between 1500-2300 local time (CEST).

The vote on the MSR will then be held between 1230-1430 CEST on Wednesday, two days later than had been expected by the market, according to a final draft agenda for next week’s sitting.

“During the vote day there might be some ‘sell the fact’, but I don’t expect more than a 10-15 cent drop,” the trader said.

Heavier auction supply is also on the way next week with sales volume of 15 million, a near-maximum for 2015 and up from almost 12 million this week.

Germany earlier on Friday sold 3.2 million spot allowances for €7.42, in an auction that cleared at market and attracted total bids equivalent to 9.2 million units.

Implied EUA carry trade annual returns German clean dark spreads
Dec-15 Dec-16 Dec-17 Dec-18 Cal Yr Price Wk chg
Spot 0.902% 1.009% 1.193% 1.341% 2016 €4.07/MWh +0.16
Dec-15 1.074% 1.267% 1.407% 2017 €3.23/MWh +0.17
Dec-16 1.461% 1.586% 2018 €3.18/MWh +0.25
Dec-17 1.702% (based on 36% efficiency factor)
(does not include transaction costs)

 

By Ben Garside and Michael Szabo – ben@carbon-pulse.com

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