EU Market: EU carbon posts 1.9% weekly gain as CERs hit 2015 high

Published 20:02 on October 2, 2015  /  Last updated at 15:20 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

European carbon prices were steady on Friday to end with a 1.9% weekly gain, while CERs continued their march upwards to touch their highest level so far this year.

European carbon prices were steady on Friday to end with a 1.9% weekly gain, while CERs continued their march upwards to touch their highest level so far this year.

Front-year EU Allowance futures trading on ICE Futures Europe settled 2 cents lower at €8.15 on volume of 10.2 million.  Around a third of that was spread trades.

The market saw more volatility compared to recent weeks, with prices touching a two-month low of €7.87 on Tuesday before soaring on Wednesday and hitting a nine-day high of €8.25 on Thursday.

“There’s been a lack of follow-through on Wednesday’s short-covering, but the long-term upward trend seems intact,” one trader said.

Bullish government auctions and higher dark spreads have been the main bullish drivers this week.

Wednesday’s sale cleared 4 cents above the spot market – the highest premium seen in an auction so far this year – while Thursday’s cleared 3 cents above.

Germany on Friday sold 3.2 million spot units for €8.10 each, in an auction that cleared 2 cents below the secondary prompt market and attracted 9.1 million allowances in bids.

Friday’s bid-to-cover level was 2.85, just above the week’s average of 2.84 but well below last week’s 3.83 and the year-to-date mean of 3.10.

Government auctions will offload 11.95 million EUAs next week, markedly fewer than the 15.08 million sold this week.

Germany will also sell 781,500 spot EUAAs on Wednesday in its second aviation allowance sale of the year.

September’s auctions saw 62.9 million allowances come to market – the second highest monthly total for 2015.

They attracted an average of 17.95 bidders per sale, which was the most since April.

The mean oversubscription rate was 3.08, while clearing prices were in line with the mean bid price.  In the first eight months of the year, the mean bid was on average 7 cents below the clearing price, suggesting stronger interest in last month’s auctions.

DARK SPREADS

German clean dark spreads hit a two-week high on Thursday, fuelled mainly by falling coal prices.

Several traders this week said firmer profit margins for coal-burning utilities were spurring more EUA buying by generators.

The euro strengthened against the dollar on Friday after data showed US employers added fewer jobs in September than expected, damping speculation the Federal Reserve will raise interest rates this year.

However, German baseload power prices fell and ARA coal rose, and combined this knocked between 6% and 8% off the calendar year German clean dark spreads.

CERs

Meanwhile, Dec-15 CERs hit a 2015 high of 56 cents, a 3-cent gain on the previous day’s settlement. They then settled at 55 cents on Friday, posting a 4-cent weekly gain.

Volume was moderate at 290,000 credits changing hands in the final trading session of the week.

“It looks like a pure squeeze on supply.  There aren’t many around these days, so holders are happy to squeeze an extra cent or two out of the price,” the trader said.

Market participants haven’t been able to pinpoint the reason behind the recent buying.

The benchmark CER futures had risen 20 cents or 56% since hitting their 2015 bottom of 36 cents in June.

Below are this past week’s auction results, featuring the clearing price, distance to front-year EUA futures in the secondary market, and bid-to-cover ratio:

28/09/2015 EU 2,918,000 €7.92 -0.03 2.54
29/09/2015 EU 2,198,000 €7.87 -0.03 2.77
30/09/2015 UK 3,123,000 €8.00 +0.02 3.10
01/10/2015 EU 2,198,000 €8.20 +0.01 2.93
02/10/2015 DE 3,198,000 €8.10 -0.04 2.85

And next week’s scheduled sales:

05/10/2015 EU 2,198,000
06/10/2015 EU 2,198,000
07/10/2015 DE 781,500 EUAAs
08/10/2015 EU 2,198,000
09/10/2015 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 1.236% 0.909% 1.049% 1.172% 2016 €4.34/MWh -0.01
Dec-15 0.859% 1.038% 1.168% 2017 €3.43/MWh -0.17
Dec-16 1.217% 1.333% 2018 €3.14/MWh -0.17
Dec-17 1.442% (based on 36% efficiency factor)
(does not include transaction costs)

 

By Mike Szabo and Ben Garside – news@carbon-pulse.com

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