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END OF DAY – Carbon hovers near 23-month low in weak complex

(Montel) Europe’s benchmark carbon contract remained close to its lowest level in 23 months late on Thursday as weakness across the energy complex prompted emission allowances to sink through technical support.

The main Dec 24 contract for EUAs was last seen trading at EUR 60.76/t, down EUR 1.65 on its prior settlement. Earlier, it touched EUR 60.26/t, its lowest point since March 2022.

Observers highlighted pressure from falling gas prices that have curbed the cost of switching away from coal-fired generation and weighed on energy prices broadly in Europe.

The pressure today sufficed to induce a downside breakout to carbon’s increasingly narrow trading range of recent days as the market fell through support levels at EUR 61.60/t and EUR 60.86/t.

“The market has little reason to rise with reduced energy price forecasts, reflecting analysts' economic growth projections for 2024 being adjusted downward,” said analysts at consultancy Belektron in a note.

Only a particularly cold turn in the weather that shook the market’s faith in healthy gas imports and inventories was likely to provide an incentive in the near term to drive a reversal, said a trader.  

Energy Aspects pointed to high interest rates and “low or negative” gas- and coal-fired generation margins “meaning there is likely little appetite to tie up capital and move on early EUA purchases”.

Manufacturing sentiment improves
It saw some sign of recovery in European manufacturing based on the pace of improvement in a recent purchasing managers index.

However, the index remained in contraction, suggesting at best a swifter than expected recovery this year if the coming months’ readings rise at the same pace as January’s 2.2 point increase to 46.6.

Overall, Energy Aspects said it expected allowance demand among stationary installations obliged to take part in the EU ETS to come in 45m tonnes lower this year as the addition of renewable energy outpaces demand growth.

Gas prices on the Dutch TTF hub were around 1% lower in late trading. The benchmark front month was last seen at EUR 27.80/MWh, down EUR 0.39 on its prior settlement. Earlier, it touched EUR 27.62/MWh – roughly half where it stood in mid-October.

“With no severe cold weather on the horizon, it would need something to go wrong with supply for prices to rise significantly,” said Craig Lowrey, principal consultant at Cornwall Insight.

Coal prices similarly softened, with front-month API 2 delivering into northwestern Europe last seen down USD 0.65 at USD 96.50/t.