EU carbon prices slipped slightly on Friday but still posted a 2.1% weekly rise, as traders bet on further near-term gains after prices moved out of a brief downward trend and amid bullish signals from the energy complex.
The benchmark Dec-15 EUA contract settled down 2 cents at €8.27 on ICE, near the middle of the day’s €8.23-€8.33 range, on fairly thin turnover of just over 7 million units.
The front-year futures have risen 17 cents week-on-week.
They have ended little changed for the past three sessions, with the week’s main move coming as a 2% gain on Tuesday after breaking above a level seen as technical resistance following a strong auction result that morning.
The €8.18 mark, the 20-day moving average and middle Bollinger Band of the Dec-15s on Tuesday, had been identified by some in the market as a level that carbon needed to breach in order to break out of a bearish trend mapped since an Aug. 20 peak of €8.43.
This gave speculators confidence to place bets that prices would rise further, ending a period of uncertainty amid lower summer demand and curtailed auction volume throughout August.
French bank Societe Generale upped their year-end price forecast 6% on Wednesday. They and others predict prices will rise above €8.50 on tighter supply due to the ongoing Backloading programme and as industrial companies grow more reluctant to sell their surplus units.
The energy complex has provided bulls further encouragement, while the euro strengthened against the dollar amid doubts over whether the Fed would raise interest rates next week.
This helped make dollar-denominated coal cheaper for EU utilities, helping to widen German clean dark spreads.
On Friday alone they were up between 4% and 8.5% for the front three calendar years, putting them at or near multi-month highs.
Below are this past week’s auctions, clearing price, distance to secondary spot EUA market, and bid-to-cover ratio:
| 07/09/2015 | EU | 2,918,000 | €8.02 | +0.01 | 2.85 |
| 08/09/2015 | EU | 2,198,000 | €8.09 | +0.01 | 2.82 |
| 09/09/2015 | EU | 935,000 EUAAs | €7.94 | -0.25 | 5.01 |
| 10/09/2015 | EU | 2,198,000 | €8.25 | -0.01 | 2.24 |
| 11/09/2015 | EU | 3,198,000 | €8.22 | -0.01 | 2.35 |
And next week’s scheduled sales:
| 14/09/2015 | EU | 2,198,000 |
| 15/09/2015 | EU | 2,198,000 |
| 16/09/2015 | UK | 3,123,000 |
| 17/09/2015 | EU | 2,198,000 |
| 18/09/2015 | DE | 3,198,000 |
| Implied EUA carry trade annual returns | German clean dark spreads | |||||||
| Dec-15 | Dec-16 | Dec-17 | Dec-18 | Cal Yr | Price | Wk chg | ||
| Spot | 1.421% | 1.046% | 1.220% | 1.281% | 2016 | €4.71/MWh | +0.61 | |
| Dec-15 | 0.967% | 1.202% | 1.269% | 2017 | €3.88/MWh | +0.66 | ||
| Dec-16 | 1.437% | 1.431% | 2018 | €3.55/MWh | +0.31 | |||
| Dec-17 | 1.417% | (based on 36% efficiency factor) | ||||||
| (does not include transaction costs) | ||||||||
By Ben Garside – ben@carbon-pulse.com
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