(Corrects Virtuse comment in pars 11, 12)
EU carbon rose 1.4% on Tuesday after a strong auction result triggered a rebound from a fresh three-week low, but analysts warned that prices remained lodged in a short-term downward trend.
The benchmark Dec-15 EUA contract settled 12 cents up at €8.44 on ICE, near the top of the day’s €8.28-8.45 range on fairly heavy turnover of 16 million.
The intra-day floor, the lowest price since Oct. 12 and also the contract’s lower Bollinger band, was hit just before Tuesday’s auction bidding window closed at 1000 GMT.
The EU’s sale of 2.9 million spot EUAs cleared a cent below market and was 3.46 times oversubscribed, which was above recent levels.
With Monday’s auction bid-to-cover ratio of 4.33, this week’s sales have outpaced last week’s average bidding coverage of 3.13.
“The rebound is truly due to strong primary demand at EUA auctions, both yesterday and today,” said analysts at GDF Suez Trading on Twitter.
BEARISH WARNING
Analysts expect this week’s uptick of auction supply – to 15.08 million from 11.95 million last week – to weigh on the market, adding that they do not predict substantial price gains this week.
“With auction volumes back up by another 3 million tonnes, around 15 million tonnes in each of the next three weeks, any movement upwards to prices is likely to be limited,” analysts at Energy Aspects wrote in a weekly note on Tuesday.
“The modest moves in the clean darks were unlikely to have shifted the appetite for utilities to hedge (but would not have been supportive anyway), but the price softness may have suggested growing concern over the future prospects for carbon price increases,” they added.
Calendar 2017 and 2018 German clean dark spreads, already at their lowest for at least three months, dipped further on Tuesday as higher carbon and lower power prices eclipsed a fall in coal prices.
Anatoly Stolbov, an analyst at Virtuse, said in a note to clients that while carbon had been in a short-term downtrend, this was not likely to lead to a deeper sell-off.
“Most likely the market is viewing lower prices as an opportunity to buy with discount,” he said, giving a neutral outlook for prices for the rest of the week, with some downside risk due to unseasonably warm and windy weather curbing heating demand and thermal generation.
EUAs have shed 4.9% from peak-to-trough since Oct. 29 and have ended lower in six of those nine sessions. However, they are still 15% higher since the start of the year, holding in a longer term upward trend.
By Ben Garside – ben@carbon-pulse.com
