EU carbon prices kept below €8 on Friday as the last auction to sell more than 2 million units for a month drew little interest.
The Dec-15 EUA contract settled down 1 cent at €7.88 on ICE amid fairly thin turnover of around 7 million after easing back from €7.95 in early trade.
The benchmark carbon contract has gained 5.6% in July despite dropping out of the month’s upward channel on Thursday, when speculators pushed prices below support at €8 to trigger stop-loss orders.
The contract traded in a €7.33-8.15 range throughout the month, with the top trade its highest for 2.5 years as backloading reforms slowly choke supply.
“The market is consolidating and underwent what I see as a normal correction yesterday. I still believe we will be above €8 quite soon,” said one trader.
He said this would be mainly due to the market’s tighter supply balance due to reduced auctions throughout August.
WEAK AUCTION, SUPPLY DROP AHEAD
Germany’s auction of 3.198 million spot EUAs cleared 3 cents below market at €7.82 at 0900 GMT, with secondary prices little changed immediately after the sale.
The sale was 1.71 times oversubscribed, the lowest bid-to-cover ratio since June 25 and in stark contrast to above-average subscription rates of 3+ earlier in the week as traders moved to secure enough allowances ahead of the August auction slowdown.
From next week the near-daily sales will average 1.5 million, more than halving in volume in a scheduled August reduction to account for lower summer demand.
Analysts at Energy Aspects noted that the August drop in auction volume, down 60% m/m to 27 million from 67 million this year, had brought price increases in the recent past.
“The last three August periods have seen m/m increases in average EUA prices so even though trade is likely to be limited, trading around 8 €/t seems entirely plausible,” they said in a report on Friday.
SPREADS BACK UP
The euro rose as much as 1.3% against the dollar on weak US labor cost data, reversing yesterday’s slide.
This, along with cheaper dollar-denominated coal, helped push 2017 and 2018 German clean spreads back to levels seen earlier this week to provide a bullish signal for carbon.
By Ben Garside – firstname.lastname@example.org