Benchmark EU carbon prices hit their highest levels since November 2012 on Wednesday as a lack of supply from government auctions and fatter profitability for coal-fired utilities encouraged speculative buying.

The Dec-15 EUA reached as high as €8.23 on ICE Futures Europe in afternoon trade after breaching the €8.15 peak reached on July 23.

The front-year EUAs later eased back but still settled up 10 cents on the day at €8.20 on turnover of less than 12 million units.

AUCTION CURBS TIGHTEN MARKET

No auctions were held today and the week’s scheduled supply is the lowest yet this year as part of a slimmed-down August calendar to coincide with reduced holiday period demand.

EU member states will sell 27 million spot EUAs via auctions in August, down from 63 million in July with two more weeks of reduced sales before they ramp up again.

Analysts had predicted prices would rise this month in line with an historical trend during the reduced auction schedule, when the near-daily government sales are less than half average levels.

Some traders say this encourages buying as there is a reduced chance of price drops amid tighter supply but others have warned those bets could still be risky because below-average secondary market volume makes it easier for speculators to move the market, up or down.

EUA turnover across all platforms has averaged just over 9 million so far in August, well below the year-to-date average of 16.6 million.

DARK SPREADS LEND SUPPORT

Despite higher carbon prices, German baseload clean dark spreads rose to a six-week high for 2017 and a two-week high for 2018, upping the incentive for utilities to sell more power forwards and buy the corresponding carbon.

The spreads widened because EU coal prices dipped while the euro strengthened to a month-high against the dollar amid fears the Chinese yuan devaluation will deter the US Federal Reserve from raising interest rates. This made imported coal much cheaper for European utilities.

Below are the auctions this week, distance to market, bid-to-cover ratios:

8/10/2015            EU          1,459,000             +€0.01 v market, btc 3.84

8/11/2015            EU          1,459,000             +€0.02 v market, btc 3.52

8/13/2015            EU          1,459,000

8/14/2015            DE           1,599,000

By Ben Garside – ben@carbon-pulse.com