(Corrects EUAA auction date in table)

EU carbon prices were trading in negative territory for much of Monday despite a strong auction result and bullish signals from the energy complex, as analysts warned of a bearish trend that could send prices below €8 this week.

The benchmark Dec-15 EUA ended flat at €8.10 on ICE, near the top of the day’s €8.02-8.13 range on slim volume of a little over 7 million.

Activity across financial markets is expected to be quieter than normal today as North America celebrates its Labour Day holiday.

The contract could fall further unless the opening EU member state talks on ETS reforms generate enough positive sentiment to override bearish technical signals, said Bernadette Papp, an analyst at brokers Vertis.

“In order to break out from the short-term declining trend channel, the price has to jump above the 20-day moving average at €8.18,” she said in a weekly blog post.

LONGER TERM

Technical analysts at EnergyCharts.de pointed out that carbon was still in a longer term bullish phase but current prices were close to levels that could jeopardise that upward path.

“The Dec-15s remain in the stable upward trend in place since March, which is exemplified by the rising highs and rising lows,” they said.

“If the resistance at €8.43 is overcome, a new pro-cyclical buying signal is generated, which is expected to lift the market up to €8.50 and subsequently to €8.74. But to the downside, breaking below support levels at €7.90, and particularly at €7.75, would jeopardise the stability of the aforementioned upward trend.”

Prices shed 0.2% last week as financial markets were gripped with more uncertainty over the state of China’s economy, quelling appetite to buy carbon despite its favourable long-term price prospects.

BACK TO SCHOOL

“There is certain a ‘back to school’ feel to the market with auction volumes now back to normal and people returning to work after the summer break,” said traders Redshaw Advisors in a weekly note to clients.

“Keep an eye out for an EUA price close below €8.00 which may herald more weakness to come. The Chinese stock markets seem to have stabilized somewhat, yet wider economic uncertainty remains,” they added.

At 0900 GMT, the EU’s sale of 2.918 million spot EUAs cleared a cent above the secondary spot market at €8.02, with a bid-to-cover ratio of 2.9, slightly below the year’s average of 3.1.

The front-year contract rose as much as 4 cents shortly after the sale.

“Auction values will continue to increase as we go through the month and will be around the 12 million tonne level this week. This could lead to a couple of weeks of softening, before the upward trend reasserts itself,” said analysts Energy Aspects.

“We expect prices to trade in the €8.00 to €8.50 range for the coming month, although an excursion below the lower end of that range this week is possible as the market adjusts back to higher auction volumes,” they said in a weekly update.

SPREADS LIFT

German baseload power prices trading on EEX lost at least 1% across the board, but this paled compared to the 2.5% loss posted by front-year European coal prices.

The Cal-16 DES ARA contract on ICE shed $1.31 to $50.75/tonne, which helped lift the front-year German clean dark spread by some 3%.

The spread values further down the curve saw even meatier gains, rising between 6% and 8% to levels not seen in a fortnight.

This week’s scheduled EUA auctions, clearing price, distance to secondary spot market, and bid-to-cover ratio:

07/09/2015          EU          2,918,000             €8.02   +€0.01             2.85
08/09/2015          EU          2.918,000
09/09/2015          EU          935,000 EUAAs
10/09/2015          EU          2,918,000
11/09/2015          DE          3,198,000

By Ben Garside – ben@carbon-pulse.com