EU carbon recovers from weak auction setback to post 1.7% weekly gain

Published 11:23 on July 17, 2015  /  Last updated at 10:39 on July 19, 2015  /  EMEA, EU ETS  /  No Comments

European carbon notched a 1.7% weekly gain after bouncing back from a weak auction result on Friday that briefly pushed prices below a key technical level.

European carbon notched a 1.7% weekly gain after bouncing back from a weak auction result on Friday that briefly pushed prices below a key technical level.

Front-year EUAs settled at €7.75 on ICE Futures Europe, 8 cents up on the day, after dropping to as low as €7.63, one cent below the €7.64 technical resistance level that had contained prices over the past six weeks.

This left carbon 13 cents higher week-on-week and near the top of its €7.58-7.85 trading range this week.

Prices dipped on Friday after the German spot EUA auction cleared at €7.60, some 5 cents below prompt prices at 0900 GMT, the time the sale’s bidding window closed. That was the largest discount seen in a government auction since early June.

Friday’s sale attracted bids worth a total 6.4 million units, the fewest since July 9, and it capped a week that saw 11.95 million allowances come to market.

Some 15.08 million are due to be sold next week, followed by 14.81 million the following week.  After that, volumes are halved in August to reflect lower summer demand.

The week’s gains came in the face of broadly weaker signals from the energy complex.

Friday’s weaker euro wasn’t enough to offset the drop in dollar-denominated calendar-year DES ARA coal prices. Cheaper coal and firmer baseload power helped balance the downward pressure higher EUAs had on German clean dark spreads. The Cal-16 spreads were unchanged for the week, while the Cal-17s and Cal-18s both slipped by around 3-4%.

NEW RANGE

Prices had oscillated in a €7.18-7.64 channel between the end of May and this week, before breaking higher on Monday.

Some bullish traders had hoped a new trading range had been established after speculative buying triggered by the new bailout deal agreed for Greece helped lift prices to a five-month high of €7.85 on Tuesday.

But profit-taking prevented the Dec-15 futures from testing their 2015 high of €7.90, sending them back down to current levels.

Several traders said that the bullish sentiment generated from the Greek deal and the European Parliament’s approval of the MSR earlier this month had mostly evaporated, a notion that was supported by data from spread betting and CFD trading website IG.

IG, which lets individual investors play the financial markets, said that 67% of the EUA trades done on its platform this week were sale orders, and that 12% of the open positions in its market currently were bearish plays – nearly double the 6-7% seen over the past few weeks.

However at 88%, the vast majority of open trades on IG expected prices to rise, a view shared by analysts polled by Carbon Pulse earlier this month.

Implied EUA carry trade annual returns German clean dark spreads
Dec-15 Dec-16 Dec-17 Dec-18 Cal Yr Price Wk chg
Spot 0.948% 0.996% 1.218% 1.304% 2016 €4.07/MWh +0.02
Dec-15 1.032% 1.282% 1.353% 2017 €3.23/MWh -0.12
Dec-16 1.533% 1.525% 2018 €3.26/MWh -0.13
Dec-17 1.509% (based on 36% efficiency factor)
(does not include transaction costs)

 

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

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