EU carbon prices rose above €8.50 on Monday after a government auction cleared above market and German power prices halted their recent declines.
The Dec-15 EUA contract settled 14 cents up at €8.53 on ICE, near the top of the day’s €8.37-8.54 range, on steady turnover of 12.9 million units.
The top trade was the highest since Nov. 6, as some market watchers predicted a more positive outlook after carbon held its ground last week despite high auction supply and a bearish energy complex.
“If the market can’t go down when conditions are bearish then it must go sideways as long as those conditions persist, or it will go up as the shorts create more demand on their exit,” said traders Redshaw Advisers in a note to clients.
“The apparent effect of Backloading (no move down in a week of strong supply and bearish sentiment) and the prospect of low auction volumes in December suggest a move up is now just a matter of time.”
Thomson Reuters analysts said they expect a short-term bullish correction this week “mainly due to the rebound potential for the German power Cal’16 contract,” adding that the Dec-15 EUAs were well supported at around €8.30, “limiting the room to the downside.”
Next year German baseload power rose 16 cents to €28.74/MWh on EEX, with bigger gains further along the curve, helping to claw back some of last week’s 2.5% loss. The gains’ bullish effect on the German clean dark spreads was partly offset by higher carbon and dollar-denominated coal.
While the 2016 spread was little changed, the 2017 and 2018 spreads widened to rebound from the seven-month lows reached on Friday.
STRONG AUCTION
Today’s upward move came after EU nations sold 2.9 million spot EUAs at 1 cent above Dec-15 futures prices at 1000 GMT, the first time a government auction has cleared at a premium to the benchmark contract since Oct. 27.
Bid coverage of 2.91 was roughly in line with last week’s average though below the year-to-date mean of 3.1.
This week’s auction supply is little changed, with a rare Polish sale replacing the UK’s fortnightly auction to give a weekly total of 14.81 million, down from last week’s 15.1 million.
However, not all observers were bullish. Vertis analyst Bernadett Papp warned that carbon could still be stuck in a negative technical rut.
“The price was not able to break out from the declining trend channel last week and it might remain under pressure this week as well due to the abundant supply of allowances, a weak energy mix and a general risk-off mood in the markets after the terror attacks in Paris last Friday,” she wrote in a weekly blog post.
She added that prices could this week move between their 20- and 50-day moving averages of €8.31 and €8.49 respectively, with resistance beyond that at €8.71.
Meanwhile, Asian shares hit six-week lows overnight as investors shifted their assets to traditionally safer havens such as gold and government bonds, and European and US shares posted gains as analysts saw limited global economic impact from Friday’s Paris attacks and the subsequent renewed bombing campaign by the French in Syria.
By Ben Garside – ben@carbon-pulse.com
