EUA Dec17: Growing uncertainties about this week’s trilogue

Vertis – With the next trilogue meeting approaching and market participants getting more cautious, the volatility in the carbon market decreased last week. Risk averse traders pushed the EUA Dec17 price down by 1%, but kept it very close to the psychologically important 7 euro level.

The EUA Dec17 started last week with a 5 cents gap up, but declined continuously from the opening level on the weak energy mix. The price hit a daily minimum at 6.83 euro (just 2 cents below the 20DMA that worked as a support in recent days) before returning to 6.94 euro. The contract lost 13 cents or 1.8% by the end of the day. The traded volume of 14.2 million remained well below the September average of 19.7 million.

The EUA Dec17 started Tuesday in a negative mood opening 3 cents below Monday’s settlement. The price slipped to a daily minimum at 6.88 euro before reversing. The lack of auction and the higher power prices lifted the price back above 7 euro. After hitting a daily maximum at 7.13 euro, the price turned slightly lower to close the day at 7.00 euro, a gain of 6 cents or 0.9%. The traded volume of 7.7 million allowances reflected the public holiday in Germany.

On Wednesday, the benchmark carbon contract fell 10 cents from previous day’s close and settled at 6.90 euro, at the lower end of the session’s trading range. Prices jumped to intraday high shortly after the auction and hovered around 7 euro until the last hour of trading when sellers pushed prices down.

Despite the strong energy mix, the EUA Dec17 was not able to climb above 7 euro on Thursday. After opening with a 2 cents discount below Wednesday’s settlement price, the benchmark carbon contract declined continuously to hit a daily minimum at 6.79 euro, a level not seen for a week. Buyers then lifted the price in the afternoon back to 6.95 euro, but gains could not be kept and the price closed the day with a loss of 1 cent (-0.1%).

The EUA Dec17  opened with a 4 cents discount on Friday. The price slipped to an intraday minimum at 6.77 euro before reversing and increasing to a maximum of 7.05 euro as coal prices fell and the German dark spread improved. The benchmark carbon contract closed the week at 7.00 euro exactly, representing a daily gain of 1.6%, but a weekly loss of 1%.

Although the 20DMA lost its role as support level last week, the gravity at 7 euro is still working properly and every time the price slips to 6.80 euro, buyers lift the price back towards the psychologically important level.

The most awaited event of this week will be the trilogue on Thursday, 12 October. EU ambassadors adopted a new mandate for the negotiations last Friday, allowing for the cancellation of allowances from the market stability reserve from 2023 on. This news could in theory increase the price of allowances, but there are still many topics where the preferences of the Council and the European Parliament differ decreasing the chances that this could be the last trilogue.

The fact that UK PM Theresa May suspended ETS rapporteur Julie Girling from the Tories this Sunday is complicating the situation further. It is still not clear how this will affect the ETS reform negotiations. Last time when Mrs. Girling was appointed to replace previous rapporteur Ian Duncan, the EU parliament reacted quickly, but it has to be seen if this will be the case this time as well. Still, this uncertainty might keep a cap on potential price gains.

Other factor weighing on the prices will be the auction volume increasing by almost 30% in a weekly comparison. (Last Tuesday was a bank holiday in Germany an d no auction took place on EEX.)

All in all, we remain cautious for this week and expect the price to move between 6.70 and 7.40 euro.

Source: Bloomberg, ICE

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