European carbon topped €8 on Monday for the first time since 2012, as prices rose by as much as 3.4% on a mix of utility and speculative buying due to higher German power prices and ahead of lower auction volumes next month.
Front-year EU Allowance futures climbed to an intraday peak of €8.01 shortly after 1430 GMT, before closing the day at €8.
Volume was strong at 19.7 million units traded on ICE Futures Europe.
“Part of it is the positive sentiment and bullish traders following the breakthrough of the €7.64 technical level last week and then the 2015 high today,” one trader said.
The benchmark EUA contract punched through that €7.90 barrier earlier today after several attempts, a marker that was set back on Feb. 16.
Traders said much of today’s buying was speculator-driven, as bullish participants ramped up buying after the Dec-15 futures breached those two technical resistance levels in the past five sessions.
“The fact that carbon held up during the Greek debt crisis and also during recent euro weakness is also significant,” another trader said earlier, referring to another source of the contract’s perceived technical strength.
The euro is down by around 2.7% against the dollar since last Monday’s open, compared to a more-than 5% rise in the Dec-15 EUAs over the same period.
Positive sentiment was also provided by European equity markets, which rose for a ninth straight day to post its longest winning streak since 2014, as concerns about Greece’s future in the eurozone eased and the country’s banks reopened after being shut for three weeks.
PRE-HOLIDAY HEDGING
“After €7.90, the next obvious resistance (for EUAs) is around €8,” a third trader said, adding that higher power prices had also fuelled the rally.
German calendar-year baseload power rose across the board, with the 2018 contract adding 15 cents to €32.12/MWh – a level also not seen since mid-February.
The front-year Cal-16s rose by nearly 1% to €32.45/MWh on EEX.
This helped support the German clean dark spreads, which were holding near recent highs despite firmer coal and carbon prices.
Some traders noted that a few European utilities had increased their hedging of forward power sales ahead of large parts of the market taking holidays next month and August’s reduced EUA auction volumes, which are slashed annually to reflect the muted demand.
Higher-than-normal volumes of a total 4.3 million units done today between the Dec-17s and 18s – futures contracts used mainly by Western Europe’s largest utilities to hedge their forward electricity generation – supported this trend.
Some 27 million spot EUAs are to be auctioned by EU governments next month compared to 63 million in July, which is the busiest month for sales this year.
Earlier on Monday, a group of 25 EU nations auctioned 2.9 million spot EUAs for €7.76 each, the same price as the secondary prompt market at the time, with a bid-to-cover ratio of 2.6.
The bellwether front-year EUA futures are now up by almost 7% for July and by over 8.5% since the end of 2014.
Market participants have attributed these gains mainly to EU lawmakers agreeing a stronger version of the Market Stability Reserve – a tool to control permit supply in the EU ETS from 2019 – than previously proposed, and to the bloc’s Backloading programme.
Backloading will this year reduce allowance auctions by 300 million units this year and 200 million next year, after withdrawing 400 million from the market in 2014. All of those EUAs will be deposited in the MSR when it launches in Jan. 2019.
Meanwhile, front-year CER futures on ICE also rose on volume of 100,000 units, adding 2 cents to 45 cents each – their highest in a week but still shy of their 2015 high of 54 cents.
By Mike Szabo and Ben Garside – ben@carbon-pulse.com
