EU carbon prices rose for the second successive session on Wednesday amid signs of utility buying and as speculators grew more confident the market could sustain higher auction volume.

The benchmark Dec-15 EUA contract ended up 5 cents at €8.18, at the higher end of the day’s €8.05-8.23 range on fairly slim volume of just under 10 million.

Turnover was relatively strong further down the curve, with 2.2 million and 1.4 million changing hands on the 2016 and 2017 contracts respectively.

Traders said this was likely buying from utilities, spurred by gains in German power prices, with the 2017 baseload contract up 1.2% to €29.90/MWh on EEX.

“Utilities could be looking to lock in these low (carbon) prices, as I think now everyone agrees prices are going to climb quickly till 2020,” one said.

Yet profit margins for German coal-fired generators narrowed slightly as higher dollar-denominated coal prices were exacerbated by a weaker euro.

Earlier in the session, EUA prices had dipped to an intra-day low of €8.05 shortly after the EU’s auction cleared 4 cents below market and attracted the lowest bid-to-cover ratio for almost a month.

But in a potential sign of underlying strength, the mean bid was above the clearing price for the third time in the past week.

August auction volume was cut in half by governments to account for lower holiday period demand, with sales returning to their regular size only on Monday.

“It’s still quite early in September, but it certainly looks like the market is able to absorb this higher volume,” the trader added.

Below are this past week’s EUA auctions, clearing price, distance to secondary spot market, and bid-to-cover (btc) ratio:

01/09/2015          EU          2,918,000             €7.98   +€0.00             3.12
02/09/2015          UK          3,123,000            €8.00   -€0.03              2.90
03/09/2015          EU          2,918,000             €8.06   -€0.04              2.69
04/09/2015          DE          3,198,000

By Ben Garside – ben@carbon-pulse.com