EU carbon prices climbed closer to €8 on Monday after a government auction attracted high bidding in a week where supply drops to its lowest this year.
The Dec-15 EUA contract was up 14 cents to €7.93 on ICE, having traded in a €7.76-7.96 range on 7 million units.
The front-year futures traded in a €7.77-8.01 cent range last week and ultimately lost 9 cents in thin, holiday season trade with intraday ranges shrinking in each consecutive session.
The EU’s sale of 1.459m spot EUAs cleared 1 cent above market – it usually clears slightly below market, giving financiers an incentive to participate – and was 3.84 times subscribed.
This is above both the 3.05 average bid-to-cover ratio so far this year, and the 3.2 level so far in August, when exchanges roughly halve the daily amount offered due to lower summer demand.
Auctions are offering 5.98 million EUAs this week, down from 7.54 million last week.
Analysts had expected the month’s lower auction volume to provide support and continue a historical trend of August gains.
Yet, on Monday, they flagged bearish technical signals that could weaken prices further this week.
“Our technical analysis suggests that the benchmark Dec-15 contract may break (€7.74), which will spell further bearishness. However, several supportive factors could thwart a downward move, namely this week’s lower auctioning volume, slightly higher clean dark spread and any consolidation in German power prices,” said Thomson Reuters Point Carbon analysts in a weekly update.
Having languished near year-lows for much of last week, German clean dark spreads for 2017 and 2018 jumped by around 30 cents, back to the levels of the previous week.
They were only slightly off that today, as a stronger euro made dollar-denominated coal cheaper for European utilities, offsetting the gains in carbon.
While also identifying a bearish technical outlook, Bernadette Papp at brokers Vertis said last week’s four black candles (where prices had closed lower over four of the five sessions) may trigger a correction.
“All in all, although the long term increasing trend channel remained unhurt, the short term trend goes downwards,” she said in a weekly blog post.
Below are the auctions this week, distance to market, bid-to-cover ratios:
8/10/2015 EU 1,459,000 +€0.01 v market, btc 3.84
8/11/2015 EU 1,459,000
8/13/2015 EU 1,459,000
8/14/2015 DE 1,599,000
By Ben Garside – firstname.lastname@example.org