EU Market: EU carbon slips to 3-week low under €8 as full-sized auctions resume

Published 10:41 on September 1, 2015  /  Last updated at 15:16 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices broke below €8 on Tuesday after the resumption of full-sized government allowance auctions, but managed to close above the psychologically important level.

European carbon prices broke below €8 on Tuesday after the resumption of full-sized government allowance auctions, but managed to close above the psychologically important level.

Front-year EU Allowance futures trading on ICE Futures Europe touched an intraday and three-week low of €7.95 in the hours after the first permit sale following August’s reduced volumes.

Prices then clawed back and settled at €8.02, a daily drop of 6 cents, on screen volume of almost 7 million units.

Some 10 million were cleared EFP on both the Dec-15 and Mar-16 contracts, in what was potentially a time spread trade involving the forward rolling of a position.

The Dec-15s opened at a session peak of €8.15, a level that the contract has tried but failed to breach three times in the past four trading days.

A group of 25 EU member states sold 2.918 million spot EUAs for €7.98 each on Tuesday, in an auction that cleared in line with market prices and attracted bids equivalent to 9.105 million units.

The bids were the most since late July but the figure increased due to the higher daily sale volumes, which are nearly double August’s average of 1.5 million per auction.  Last month’s sale quotas were halved due to reduced summer demand.

Tuesday’s bidding interest translated into an oversubscription rate of 3.12, which was the lowest since Aug. 7.

Some market participants said they expect EUA prices to dip following the onset of higher supply, while others believe it has already been priced in to the market and are forecasting prices to creep higher due to some compliance buyers returning from holiday.

“The question for this week is whether we will see enough hedging to absorb the higher level of auction volumes on offer … while we think September prices will trade on average above (€8), downward excursions cannot be ruled out,” said analysts Energy Aspects in a weekly note.

German clean dark spreads edged higher for the second consecutive session as weaker coal and a stronger euro offset falls in power prices.

This provided a slightly bullish signal for carbon, though the spreads were still off levels seen early last week.

By Mike Szabo – mike@carbon-pulse.com

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