EU carbon prices fell to their lowest since Aug. 10 after Monday’s government auction attracted the fewest bids for three weeks and as German power dropped to a fresh 12-year low.
The benchmark Dec-15 EUA contract trading on ICE Futures Europe ended down 8 cents at €7.92 on ICE, breaking below a key technical support level around €7.95 to touch an intraday low of €7.90 earlier in the session.
Volume was notable with 9.4 million units changing hands over ICE’s screen-based Dec-15 futures, with a further 15 million done EFP.
Another block of 15 million went EFP on the Mar-16s, suggesting the activity was linked to a large utility rolling its positions forward. Similar large spread trades were recorded last week.
A further 6.5 million units were bought and sold along the rest of the curve on Monday, including a sizeable 1.1 million on the Dec-19s.
“The benchmark Dec-15 carbon contract is now in the vicinity of several support levels, which, from a technical perspective, suggest the market may fail to sustain the recent downward trend,” said analysts at Thomson Reuters Point Carbon.
The front-year EUAs closed at their 23.6% retracement level when measured between the 2015 low of €6.28 touched on Mar. 13 and the year’s high of €8.43 hit on Aug. 20.
They are also a touch above their lower Bollinger Band, which currently lies around Monday’s intraday low.
German baseload power for delivery next year shed 33 cents to fall below €29/MWh for the first time since 2003.
Calendar 2016 DES ARA coal also dropped to $49/tonne on ICE, while the euro gained against the dollar. Combined, this left the German clean dark spreads near Friday’s levels.
“Some colder continental weather could support thermal power (this week), although weather is looking windy, implying better wind power production,” added Trevor Sikorski, a London-based analyst with Energy Aspects.
The EU’s sale of 2.9 million spot EUAs cleared at the same level as prompt prices in the secondary market with a bid-to-cover ratio of 2.54, well below last week’s average of 3.83.
The auction attracted bids for 7.4 million units, the least since early September and a sharp fall from last week’s high average bid level of 11.3 million, which was the most since early May.
Some 15.08 million units are due to be sold in government sales this week, up slightly from last week’s 14.81 million.
Last week the contract barely budged despite fairly brisk volume, shedding 1.5% to settle at €8 on ICE after repeatedly testing the €7.95 mark identified as providing support.
Analysts have said breaking below these technical support levels could see Dec-15 prices drop to the next support at €7.76, which was August’s bottom.
“A rebound cannot be fully ruled out, as the recent bearishness may be overdone. But this week will see another influx of a relatively high auctioning volume, which will likely limit the upside,” the Point Carbon analysts said.
“The carbon market appears to be finely balanced at present. Further drops are possible with technical support levels being tested and broken, however, the material drop some were predicting in September have not yet materialised and continued support from the bid side could help keep prices at current levels,” said Redshaw Advisors in a note to clients.
“With prices having tracked sideways last week it is possible this week provides more directional insight. Further short-term losses appear more likely at present as global economic headwinds appear strong and persistent; however, with carbon so far resilient to wider economic shocks, moves to the upside are also possible,” they added.
“A drift higher, in line with the rest of the year to date, is the most likely medium term outcome. With September bringing the second highest monthly auction supply of the year, the market appears to be robust enough to cope with the supply.”
By Ben Garside and Mike Szabo – firstname.lastname@example.org