EU Market: EUAs dip towards €8 as dark spreads narrow on euro, coal

Published 10:33 on August 27, 2015  /  Last updated at 15:16 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

EUAs dipped towards €8 on Thursday, falling to their lowest since Aug. 11 despite a well-bid auction, as traders fretted over a coming auction supply increase and bearish signals in the energy complex.

EUAs dipped towards €8 on Thursday, falling to their lowest since Aug. 11 despite a well-bid auction, as traders fretted over a coming auction supply increase and bearish signals in the energy complex.

Benchmark Dec-15 EUA futures prices closed down 7 cents at €8.04 on ICE after falling to as low as €8.01. Just over 10 million units changed hands.

Today’s drop follows on from Wednesday’s 15-cent decline and comes as traders brace for the return of higher auction volume from next week, when the amount offered by governments in near-daily sales will more than double from August levels.

“The expected increase in volume expected in September is weighing the most in people’s minds and there are strong suggestions (the EUA price) will slide further,” said one trader.

A second agreed and predicted prices could fall below €8 on Friday, and possibly to as low as €7.50-7.70 next week before resuming a broadly upward trend over Q4.

“For the past two days I think the price fall came from a mix of closing long positions and taking short position for a limited period of time,” he added.

The euro, which has been increasingly used as a safe haven currency in the past month, tumbled to a one-week low against the US dollar on Thursday as global equity markets surged in a relief rally following steep losses earlier this week.

That, combined with coal prices jumping by more than $1/t alongside a 7% gain in crude oil, slashed between 7-10% off the calendar-year German clean dark spreads, despite softer carbon and a roughly 1% rise in German baseload power prices.

The clean darks, which are now at their lowest in over two weeks, dampened utility demand for EU carbon just as market supply is about to increase, thereby adding downward pressure to EUA prices.

Earlier on Thursday, the EU’s sale of 1.5 million spot EUAs cleared at the same level as prices in the secondary market and was 4.3 times oversubscribed, the highest bid-to-cover ratio since June 16.

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             €8.07     +0.00      btc 4.30
8/28/2015            DE          1,599,000

By Ben Garside – ben@carbon-pulse.com

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