EU carbon prices were pulled lower for a second straight day by falling energy prices, though trading activity down the EUA futures curve was robust.
The front-year contract trading on ICE Futures Europe ended 6 cents lower at its session-low of €8.18, having traded in a narrow 8-cent intraday range. Prices have not traded below €8.20 in a week.
Volume was healthy at 16.5 million units traded, some 9.1 million of which were block trades.
Total liquidity was heavy at 27.1 million units changing hands, with no units going EFP. That included 5.9 million allowances done for delivery between Dec. 2016 and Dec. 2019.
Traders said a pick-up in activity on the longer-dated futures may indicate more utility buying, a notion that was supported by the German clean dark spreads, which while easing on Tuesday remained near recent multi-month highs.
The spreads – profit margins for coal-burning utilities in the EU’s largest and top polluting member state – were dented by a drop in German power prices and a weaker euro.
German baseload power prices for delivery over the next three calendar years fell by at least 1.1%, flirting with recent multi-year lows.
Front-year DES ARA coal shed 40 cents to $50.50/tonne on ICE, but its effect on the dark spreads was muted by the euro sliding against the US dollar.
Anatoly Stolbov, an analyst with Prague-based Virtuse, said in a note to clients that he expects EUA prices to remain in a tight trading range for the rest of the week.
However, he noted that if Dec-15s end the week below Tuesday’s close of €8.18, which was previously seen by many in the market a technical resistance level for the contract, then he sees prices dropping down to €8.
The front-year EUAs closed below their 20-day moving average and middle Bollinger Band (€8.19), fuelling bearish sentiment. Some may see the contract’s 50-day moving average, currently hovering around €8.03, as the next technical support level.
Wider financial markets are awaiting this Thursday’s decision on interest rates by the US Federal Reserve, and traders said the outcome could spill over into the EU carbon market.
Meanwhile, a group of 25 EU nations earlier on Tuesday sold 2.918 million spot EUAs for €8.17 each, in an auction that cleared 2 cents below market and attracted bids for a total 8.22 million units.
The EU group, the UK and Germany are due to sell a combined 9.24 million units over the remainder of the week.
At the September’s mid-point, data compiled by Carbon Pulse shows that in the 10 auctions held so far this month, an average of 17.3 bidders have participated per sale, up from 15.6 in July and 14.6 in August.
However, September’s auctions have cleared on average at a cent below the spot market. This is similar to July’s sales but weaker than August’s, which on average cleared at par with prompt prices.
A further 100,000 Sep-15 CERs traded at 51 cents on ICE on Tuesday, unchanged from the previous day’s settlement.
“We expect a speculative increase in CER demand as a reaction to the ambitious political comments before the upcoming COP-21 conference,” Virtuse’s Stolbov said.
“The importance of linking emission trading systems was highlighted by (EU Climate Commissioner) Arias Canete last week, and CERs are at the moment the only proven tool to reach this status,” he said, but noting that additional CERs cannot be used in the EU ETS post-2020 under the Commission’s current proposal.
By Mike Szabo – mike@carbon-pulse.com
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