EU Market: EU carbon eases but ends above €8 to post 3.5% weekly gain

Published 19:37 on July 24, 2015  /  Last updated at 15:10 on May 11, 2016  /  EMEA, EU ETS

EU carbon allowance prices slipped on profit-taking and a weak German auction on Friday, but managed to finish the week above €8 and post a 3.5% weekly gain.

EU carbon allowance prices slipped on profit-taking and a weak German auction on Friday, but managed to finish the week above €8 and post a 3.5% weekly gain.

Front-year EUA futures trading on ICE Futures Europe settled down 7 cents at €8.02 after briefly touching a session low of €7.99 mid-afternoon.

Volume was modest at 8.8 million units changing hands on the benchmark contract, with a further 7.4 million permits traded down the rest of the curve.

Dec-15 prices hit their intraday high of €8.11 in the first hour of trade, hovering around those levels until a lacklustre auction sent prices down below €8.05.

Germany sold 3.2 million spot EUAs for €8.01 each, in an auction that cleared some 3 cents below market and attracted bids worth a total 6.83 million units.  That gave the sale an oversubscription rate of just 2.14, below July’s average of nearly 2.5.

Government auctions held in July have on average cleared just a cent below market, further emphasising the weaker-than-normal interest in Friday’s sale.

One trader said the poor result prompted some speculators to take profits off the table ahead of the weekend and following recent strong gains.

The Dec-15 futures hit a 2.5-year high of €8.15 on Thursday as buying by utilities and speculators helped prices break through several long-held technical levels over the past fortnight, including €7.65 and €7.90, the high point of 2015’s first half.

Market participants this week said some utilities were doing some last minute hedging of forward power sales, picking up EUAs before supply is choked next month.

Some traders have also noted a lack of supply on the sell side, in part due to industrials holding on to inventory ahead of permit shortages anticipated later this decade and next, and in part due to Backloading, which is cutting auction volumes by 300 million units this year.

Friday’s EUA price decline sent the front-year contract’s Relative Strength Index (RSI) back to near 65, away from the 70-mark that can indicate a commodity is overbought.

Observers said they were looking for a Dec-15 weekly close above €8 to confirm and fortify the recent gains, meaning prices may now consolidate in a new, higher trading range.

Five auctions to be held next week, including one by Poland on Wednesday, will bring a total 14.8 million units to market, before volumes are more than halved in August compared to July to reflect weaker summer demand.

The first week of August will see 7.54 million spot allowances across five auctions.

Meanwhile, wider energy prices and the euro were relatively flat compared to Thursday, meaning softer carbon prices bolstered German clean dark spreads slightly. (See below for our weekly figures)

Dec-15 CER futures dropped by 4 cents at one point to 41 cents, before settling at 43 cents on Friday on volume of 193,000 units traded.

Implied EUA carry trade annual returns German clean dark spreads
Dec-15 Dec-16 Dec-17 Dec-18 Cal Yr Price Wk chg
Spot 1.284% 1.154% 1.291% 1.377% 2016 €4.18/MWh +0.11
Dec-15 1.122% 1.301% 1.389% 2017 €3.22/MWh -0.01
Dec-16 1.480% 1.534% 2018 €3.27/MWh +0.01
Dec-17 1.580% (based on 36% efficiency factor)
(does not include transaction costs)


By Mike Szabo –