EU carbon prices ticked lower in calm trade on Friday to end the week just a cent up week-on-week despite repeatedly extending a three-year high.
The Dec-15 EUA contract settled down 4 cents at €8.64 after trading in a €8.60-8.70 range.
The benchmark futures stretched their highest point since Nov. 2012 during three sessions this week, in a series of incremental gains that failed to trigger higher upward moves.
Monday’s top trade of €8.67 extended the previous week’s peak by 4 cents, and was followed by Tuesday and Thursday’s respective high points of €8.70 and €8.71.
Some traders had doubted this week’s gains could be sustained as the rises have come on relatively light volume.
Friday’s turnover was a meagre 6 million units, with a further 1.7 million done on the Dec-16s and 1.1 million on the Dec-17s.
The energy complex was bullish for carbon, with the 2017 and 2018 German clean dark spreads cancelling out Thursday’s losses, which saw them narrow 4.5-5.5%.
They ended up more than 6% for the week.
This was due to cheaper coal, made cheaper still for European utilities by a stronger euro.
Analysts had suggested that EUA prices could be in for a brief correction after hitting technically overbought territory late last week.
The repeated setting of fresh three-year highs this week kept the Dec-15 EUA’s RSI close to the 70-mark deemed to signal when an instrument is overbought.
It was around 66 on Friday.
Meanwhile, Germany’s sale of 3.1 million spot EUAs cleared a cent below market with a bid-to-cover ratio of 2.85, below the year-to-date average of 3.1.
Next week’s auction supply tightens to 11.95 million EUAs, down from this week’s 15.08 million due to the lack of a fortnightly UK sale.
A group of 25 EU nations will also sell 933,000 spot EUAAs on Wednesday, in 2015’s penultimate auction for aviation allowances.
Below are this past week’s EUA auction results, featuring the clearing price, distance to front-year EUA futures in the secondary market, and bid-to-cover ratio:
| 26/10/2015 | EU | 2,918,000 | €8.55 | -0.06 | 2.41 |
| 27/10/2015 | EU | 2,198,000 | €8.63 | +0.01 | 2.76 |
| 28/10/2015 | UK | 3,123,000 | €8.53 | -0.04 | 1.72 |
| 29/10/2015 | EU | 2,198,000 | €8.59 | -0.04 | 2.48 |
| 30/10/2015 | DE | 3,198,000 | €8.59 | -0.02 | 2.85 |
And next week’s scheduled sales:
| 02/11/2015 | EU | 2,198,000 |
| 03/11/2015 | EU | 2,198,000 |
| 04/11/2015 | EU | 933,000 EUAAs |
| 05/11/2015 | EU | 2,198,000 |
| 06/11/2015 | 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 | 0.944% | 0.813% | 1.024% | 1.168% | 2016 | €4.47/MWh | +0.40 | |
| Dec-15 | 0.810% | 1.036% | 1.178% | 2017 | €3.58/MWh | +0.24 | ||
| Dec-16 | 1.263% | 1.372% | 2018 | €3.24/MWh | +0.22 | |||
| Dec-17 | 1.474% | (based on 36% efficiency factor) | ||||||
| (does not include transaction costs) | ||||||||
By Ben Garside – ben@carbon-pulse.com
