Front-end CER futures prices jumped to their highest level for two years on Monday following large trades, as the futures curve slid deeper into backwardation.
The Dec-15 CERs rose 9 cents to as high as €0.64 on ICE, before settling at €0.62 on volume of 1.3 million units traded. The daily futures also added 7 cents to settle at €0.63.
However, gains posted down the rest of the curve were more subdued, with all December contracts for expiry between 2016 and 2020 closing €0.54 each following increases of 3-4 cents.
Some 750,000 units appeared to have been transacted as a spread trade between the Dec-15s and 16s.
Traders could not pinpoint a clear reason for the move, but several dismissed the idea that prices jumped after the UN’s publication of a draft climate text that kept a continuation of the CDM on the table.
“I can’t see that UN deal that keeps the CDM would bring much CER demand for several years,” said one trader.
“But it’s a pretty illiquid market and it could well have been one speculative bet on a future UN deal that could have caused the jump,” he added.
STEADY GAINS
Dec-15 CERs have posted steady gains for several weeks and up until today had risen 20 cents or 56% since touching a 2015 low of €0.36 in mid-June.
Despite EU ETS demand for the units down to less than 20 million a year, traders have been reporting tight supply as developers in South Korea and China seek to convert their units to become eligible in national and voluntary market schemes, respectively, both of which can fetch higher prices.
There are also potentially new CER demand sources.
Australia’s new leadership is reportedly considering allowing their emitters to use them from next year. The country’s landfill owners are also seeking to buy $70 million-worth to compensate consumers.
In addition, airlines are making plans to source units for a post-2020 aviation offset regime, while the UN last month launched a tender to buy 350,000 CERs.
EUAs RISE ON POWER
Meanwhile, front-year EU Allowances rose slightly on the back of rises in German power prices, albeit on relatively thin volume of just over 8 million units on ICE.
The benchmark Dec-15 EUA futures settled up 6 cents at €8.21 after trading in a relatively wide €8.06-€8.24 range, just shy of last Thursday’s two-week high of €8.25.
Calendar 2016 German baseload power prices, which have become are very closely correlated to carbon prices in recent weeks, rose 1.3% to €29.19/MWh.
But in terms of profitability for EU power generators, those gains were offset by a more-than $1/tonne jump in European coal prices on ICE and a weaker euro.
This left the 2017 and 2018 German clean dark spreads at their narrowest since early August and providing a bearish signal for carbon.
By Ben Garside – ben@carbon-pulse.com
