(Updates throughout)
European carbon prices rose by more than 2% to an eight-day high on Wednesday, bolstered by a strong UK auction and evidence of utility buying.
Front-year EU Allowance futures trading on ICE Futures Europe ended up 17 cents or 2.1% at €8.15, a cent below the intraday peak of €8.16.
The daily gain was the most since July 20, and broke a downward trend that had pushed the Dec-15s to a seven-week low of €7.87 on Tuesday.
With a total of 63.4 million units changing hands on Wednesday, volume was very strong throughout the EUA curve.
Some 36.2 million units were traded on the Dec-15s and 20.5 million on the Mar-16s, with nearly 20 million of those likely involved in position rolling between the two contracts – 10 million of which went EFP.
The Dec15-Mar16 spread has seen heavy activity over the past few weeks, which market participants attributed to a large utility rolling positions forward by a quarter.
Another 6 million allowances were bought and sold on Wednesday via futures expiring between Dec. 2016 and Dec. 2018, which one trader said was likely the result of utilities hedging their forward power sales.
The Dec-15s had been trading flat before this morning’s UK auction, but jumped up to €8.07 immediately after the results were released.
The British government sold 3.123 million spot EUAs for €8.00 each, which was 4 cents above the secondary market for allowances for prompt delivery at 0900 GMT, the time the auction’s bidding window closed.
That was the largest premium recorded in a government auction so far this year.
Rising open interest in the further-dated EUA futures also points to increasing utility hedging in September, analysts at Energy Aspects wrote in a client note.
“We expect more 2018 volumes to be hedged in Q4 15, and this is what should keep the market supported as we progress through the year,” they added.
Carbon also broke through a number of technical resistance levels on Wednesday, which gave bulls fuel to push prices higher, the trader said.
Meanwhile, European coal prices continued to drop, with the Cal-16 contract plumbing a new multi-year low of $48.40/tonne on ICE.
However, carbon’s rise and a weaker euro, set against little-changed German baseload power, offset the effect of coal’s drop on the German clean dark spreads.
The Calendar 2016 dark spreads are valued slightly higher than their year-to-date average, while the 2017s and 2018s are well above their 2015 means and within sight of recent peaks.
Dec-15 CER prices shed 2 cents to settle at 49 cents on volume of 104,000 on ICE.
By Mike Szabo – mike@carbon-pulse.com
