EU carbon prices dropped 2.2% on Thursday after speculators pushed prices below support at €8, triggering stop-losses to send prices to their lowest for almost two weeks.
The benchmark Dec-15 EUA contract was already in negative territory after a government auction failed to attract as many bidders as sales earlier in the week. It lost further ground in mid-afternoon trade as buyers fell away once the support level had been breached.
The contract settled down 18 cents at €7.89 on ICE Futures Europe on turnover of 14 million units, some 9 million of that after the contract was below €8.
“It looks like a bit of a correction. There were one or two guys trying to push it below €8 and once that happened we fell pretty quickly,” said one trader.
“Volume was pretty thin so it didn’t take too much to move things but now we’re down here I think we might struggle to get back. There’s not much coming from auctions but the summer holiday means there won’t be many buyers for the next few weeks either.”
Traders said the contract had looked overbought since it broke above €8 and rose further to a 2.5-year peak of €8.15 last Thursday.
Before today’s sell-off, the Dec-15 EUA’s Relative Strength Index (RSI) was up as high as 67, just off the 70-mark that can indicate when a commodity is overbought.
WEAKER AUCTION DEMAND
The EU auction of 2.9 million spot EUAs cleared 2 cents below market at €8.00 at 0900 GMT, and secondary market prices fell 3 cents shortly afterwards to within a couple of cents of the support level despite having reached as high as €8.08 earlier in the session.
The sale was 2.29 times oversubscribed. This is not far off the month’s 2.62 average but well below the bid-to-cover ratios of the week’s previous three auctions, which were all above 3.
Auction bidding had been higher this week because traders were keen to secure enough allowances ahead of an August auction slowdown.
From next week the near-daily sales will more than halve in volume in a scheduled August reduction to account for lower summer demand. Germany will auction 3.198 million spot units on Friday but next week’s sales will average 1.5 million.
WEAKER EURO HITS SPREADS
Weaker carbon prices failed to provide relief to 2017 and 2018 German clean dark spreads, the level of profitability for German coal-fired utilities, as slight gains in dollar-denominated coal prices were exacerbated by a weaker euro, which fell 0.5% on an FT report that raised doubts about the IMF’s willingness to join a third Greek bailout.
The spreads narrowed to their lowest levels for 1.5 weeks and 3 weeks respectively, damping the incentive for utilities to sell power forwards and buy the corresponding amount of carbon allowances.
By Ben Garside – ben@carbon-pulse.com
