EU Market: EU carbon falls alongside wider energy markets to post 1.8% weekly decline

Published 18:17 on September 18, 2015  /  Last updated at 15:18 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices dropped on Friday to post a 1.8% weekly decline, as wider weakness in energy markets weighed on EUAs.

European carbon prices dropped on Friday to post a 1.8% weekly decline, as wider weakness in energy markets weighed on EUAs.

The Dec-15 contract trading on ICE Futures Europe lost 12 cents to settle at €8.12. This was a cent off the day’s low, which was touched just before the close amid a bout of selling in the final 10 minutes.

Volume on the bellwether contract was moderate at 7.7 million units.  A further 5 million units changed hands along the rest of the curve – 3.5 million of which was transacted as block trades between the daily futures, Dec-17s and Dec-18s.

Traders said carbon was pulled lower by the wider energy complex, which retreated along with equity markets after the US Federal Reserve, deciding to leave interest rates untouched at its meeting on Thursday, warned on the health of the global market.

“My entire screen is red,” one energy trader said.

Front-year German baseload power trading on EEX dropped by more than 1% to plumb a new multi-year low of €29.60/MWh. The rest of the curve followed suit, with the Cal-17s settling below €29/MWh for the first time in over a decade.

UK gas, DES ARA coal and crude oil prices were lower as well.

“Carbon’s direction next week will depend on what power will do.  Maybe on Monday we’ll see a slight correction, but over the next week I would be neutral to slightly bearish,” the trader said.

“Dark spreads have been OK-ish, but they’re starting to narrow,” he added.

The German clean darks for delivery in the next three calendar years hit multi-month highs last Friday, but slipped back by around 5% each this week.  However, even at these levels they remain within sight of the 2015 highs and some 10% above levels seen in late August, suggesting utilities may still have appetite for EUAs.

EU carbon prices have been notably stagnant this week, with the Dec-15s trading in a narrow range between €8.11 and €8.29, which one analyst said was the tightest for the front-year futures in at least four years.

Earlier on Friday, Germany sold 3.198 million spot EUAs for €8.16 each, in an auction that cleared at market and attracted total bids worth some 10.4 million units.

This week’s government sales have attracted total bids worth an average of 9.7 million units – a level not seen in since the first week of May.

EU member states will sell 14.81 million allowances next week, slightly fewer than the 15.08 million that hit the market over the past five days.

Meanwhile, EU environment ministers on Friday gave the final stamp of approval required for MSR to become law, but the market was widely expecting it and traders said it had been priced in.

The Dec-15 CERs shed a cent to 49 cents on volume of 2,000 units on Friday.

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

14/09/2015 EU 2,918,000 €8.21 -0.02 2.68
15/09/2015 EU 2,198,000 €8.17 -0.02 2.82
16/09/2015 UK 3,123,000 €8.12 0.00 3.41
17/09/2015 EU 2,198,000 €8.18 +0.01 3.90
18/09/2015 DE 3,198,000 €8.16 0.00 3.26

And next week’s scheduled sales:

21/09/2015 EU 2,198,000
22/09/2015 EU 2,198,000
23/09/2015 PL 2,854,000
24/09/2015 EU 2,198,000
25/09/2015 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 1.565% 1.082% 1.199% 1.312% 2016 €4.53/MWh -0.25
Dec-15 0.985% 1.163% 1.292% 2017 €3.77/MWh -0.22
Dec-16 1.341% 1.457% 2018 €3.47/MWh -0.18
Dec-17 1.564% (based on 36% efficiency factor)
(does not include transaction costs)


By Mike Szabo –

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