EU carbon steady in face of interest rate cut move

Reuters News
Posted: Nov 07, 2013 12:31 PM

LONDON (Reuters) - EU carbon was little changed in nervous trade on Thursday that failed to match gains in other asset classes, which were spurred by a surprise interest rate cut by the European Central Bank.

The front-year EU Allowance closed at 4.80 euros on ICE, a gain of 2 cents but below the week's ceiling hit on Wednesday of 4.89 euros.

The benchmark carbon contract was trading at 4.77 euros before the ECB's decision to reduce its main refinancing rate to record low of 0.25 percent but rose only slightly amid lower-than-average turnover.

Around 25 million permits were traded across all vintages and exchanges by late afternoon, below a daily average so far in 2013 of almost 30 million, quiet ahead of an EU meeting to discuss a support scheme for carbon prices.

"Ahead of tomorrow's meeting we are not seeing a lot more speculative activity, although the risk is certainly to the downside as expectations of a mandate are certainly priced in," one trader said.

On Friday, member states officials will examine a so-called "backloading" proposal to delay the sale of 900 million carbon permits in an effort to prop up carbon prices and encourage more investment in low-emissions technology.

Lithuania, which is chairing the meeting as holder of the EU presidency, said earlier this week that it was confident the meeting could agree a mandate to begin talks with the bloc's Parliament, the next step in a lengthy legal process.

The trader said the ECB's "game-changing" interest rate cut might have had more of a positive impact on carbon had it not come a day before the backloading meeting.

"Nobody wanted to risk doing anything stupid today," he said.

A second trader said the interest rate cut had had an impact, if only because he said it pushed up German power prices.

The 2014 baseload German power contract advanced 15 cents to 38 euros/MWh on EEX.

The ECB cut spurred both the Euro STOXX 50 and FTSEurofirst 300 indices of euro zone companies to hit five-year highs, climbing 0.9 percent and 1.1 percent respectively.

(Reporting by Ben Garside; editing by Keiron Henderson)