EU Market: EU carbon sinks on technical selling, imminent September supply

Published 16:52 on August 26, 2015  /  Last updated at 15:16 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices sank on Wednesday amid technical selling and as traders braced for the return of higher auction volumes next week.

European carbon prices sank on Wednesday amid technical selling and as traders braced for the return of higher auction volumes next week.

The benchmark Dec-15 EUA futures were down 16 cents at a session low of €8.10 by 1543 GMT, after trading up to an intraday peak and three-day high of €8.35 earlier.

Volume was moderate with almost 11 million units changing hands on the front-year contract by the time of writing.

Prices have climbed through most of August but have failed to close above the €8.35-8.38 level during numerous tries over the past two weeks, and another unsuccessful attempt to break through today prompted speculative selling.

Wednesday’s decline came after prices rallied back from a two-week low of €8.06 touched on Monday to end yesterday near €8.30.

They were bolstered by a higher euro and renewed optimism surrounding wider energy prices, which had been dented this week by worries about China’s economy.

“(Carbon’s) bounce was a bit over-aggressive, as momentum seems to still be pointing lower,” one trader said.

“Also, it seems as though the market’s speculative capacity is not particularly high as the moment.”

The Dec-15 EUAs bounced off their middle Bollinger band and 20-day moving average, currently pegged at €8.10, a level potentially seen by some as providing some technical support above the psychologically important €8 mark.

Government EUA auction volumes return to normal levels next week after being more than halved in August to reflect lower summer demand.

Some 12.16 million allowances are scheduled to be sold across four auctions next week.

A group of 25 EU nations plus Germany are due to sell a further 3.06 million units this week, after no sales were scheduled for today.

September will see 62.95 million EUAs come to market, the second highest monthly total in 2015.

“People are looking that and going short, thinking prices probably need to come off now,” the trader said.

He added that a weaker euro was also likely weighing on EUA prices on Wednesday.

That, combined with dearer coal, cheaper carbon and flat power prices, kept German clean dark spreads steady at current levels, which were hovering near their highest since June.

“If we add to these factors, that there are only three days left with a reduced auction volume, we shouldn’t be surprised that the MACD crossed the signal curve from above, giving a sell signal,” wrote Vertis analyst Bernadett Papp in her blog.
“The benchmark contract appreciated almost 3% since the end of July and more than 10% since the end of 2014. Should the market opt for profit-taking and break the €8.10 level, the next support is near €8.05 (the 30-day moving average and intraday low from Monday). The increasing trend channel which started in March would be, however, valid even if the price fell to the 50-day moving average at €7.84.”

Below are this week’s EUA auctions, clearing price, distance to secondary spot market, and bid-to-cover (btc) ratio:

8/24/2015            EU          1,459,000             €8.08     +0.00     btc 3.76
8/25/2015            EU          1,459,000             €8.22     +0.02      btc 3.46
8/27/2015            EU          1,459,000
8/28/2015            DE          1,599,000

By Mike Szabo – mike@carbon-pulse.com

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