EU Market: EU carbon steady below €8 after weak auction

Published 17:22 on July 22, 2015  /  Last updated at 15:10 on May 11, 2016  /  EMEA, EU ETS

European carbon prices steadied just under €8 on Wednesday after sliding earlier following a weak auction result.

European carbon prices steadied just under €8 on Wednesday after sliding earlier following a weak auction result.

Front-year EU Allowance futures trading on ICE Futures Europe ended the day down 1 cent at €7.96, after falling as low as €7.88 – two cents below the previous 2015 high of €7.90 hit in February.

Traders said that price will now act as a technical support level after the Dec-15 EUAs broke through it on Monday on their way to hitting a fresh 2.5-year high of €8.07 on Tuesday.

“For the past two days the auctions have been weak, so to be honest I didn’t see any reason for prices to test €8 today,” one trader said.

The UK this morning sold 3.123 million spot EUAs for €7.85 each – a discount of 3 cents to the prompt market at the time the auction ended. That was the largest differential seen since last Friday’s German auction.

Today’s sale attracted bids worth a total 5.38 million units, equivalent to an oversubscription rate of 1.72. Those were both the lowest seen in a government auction since late June.

Tuesday’s EU auction cleared 2 cents below market and attracted the fewest bidders for an EEX-hosted sale in two weeks.

Volume on the benchmark EUA futures was strong at 15.7 million units on Wednesday, with a total 27.7 million allowances traded across all EUA vintages on ICE.

“It’s mostly speculators, but some utilities buying as well,” another trader said, citing higher-than-normal volumes down the rest of the EUA futures curve.

Nearly 5 million allowances changed hands across the EUA vintages for expiry between Dec. 2017 and Dec. 2020.

Market participants have reported an increase in utility buying in the past few sessions amid higher German power prices and clean dark spreads, and ahead of reduced auction volumes next month.

A lower euro and weaker coal prices cancelled each other out in terms of their effect on European dark spreads, and flat German calendar-year baseload power prices meant the German darks were little changed on Wednesday.

August will see around 27 million allowances sold by governments, fewer than half of the 63 million sold in July in what is 2015’s busiest auction month. A further 20.9 million are still due to come to market before Aug. 1.

Both traders said that even as these lofty prices, levels not seen since late 2012, few industrial sellers were looking to sell.

“We don’t have any orders. For some it might be the holiday season, but others will wait for another jump as they are targeting €9,” the first trader said, adding that he doesn’t expect prices to top €8.50 before September.

Market participants have said that following the European Commission’s publication of its post-2020 EU ETS reform proposals, coupled with measures to curb market supply during the current trading phase and upcoming permit shortages for many pockets of industry, manufacturers may decide to hold on to larger shares of their surplus EUA inventories rather than sell them.

By Mike Szabo –