EU carbon down 9.4 percent in November as supply curbs seen distant

Reuters News
Posted: Nov 29, 2013 12:35 PM

LONDON (Reuters) - EU carbon fell 9.4 percent in November as lawmakers advanced a plan to cut supply but were unable to move fast enough to block an influx of government permits depressing the market.

The December 2013 EU Allowance ended on Friday at 4.36 euros on ICE, down 7 cents on Thursday's settlement and 51 cents down month-on-month.

"It's a case of the auctions and EIB (European Investment Bank) sales coming and coming. It is hard to justify a buy position among all that supply," said one trader.

Germany's sale of 4 million spot permits on Friday morning was almost three times subscribed, a sale typical of the near-daily government auctions that feed permits into the market at a rate of around 80 million a month.

Since mid-November, additional supply has also come from the EIB, which is tasked with selling 100 million permits over five months to raise funds for innovative low-carbon energy projects.

The EIB aims to minimize its market impact by spreading sales across exchanges EEX and ICE through over-the-counter and screen-based futures contracts of different maturities.

Despite the influx, traders said few market participants were willing to take big bets on price falls for fear of getting caught out by price spikes on news of any progress in an EU plan to cut supply.

"We usually see a rally if there's anything major comes out about backloading," the trader said, referring to the EU's proposal to delay 900 million government permit sales to prop up prices and deter investment in high carbon technology.

The proposal took major steps towards becoming law during November, with prices spiking 4 percent within minutes on November 8 after member states agreed to speed talks with the EU Parliament on the bill.

The news pushed the front-year contract to a peak of 5.04 euros - the highest this month - but it quickly fell back as traders wondered how long it would take EU officials to implement the law.

Analysts forecast carbon prices will eventually reach double figures due to backloading, but don't expect the start of any withdrawal of permits from auction schedules until the middle of next year.

(Reporting by Ben Garside; editing by Tom Pfeiffer)