END OF DAY – Selling frenzy pulls EU ETS to fresh six-month low

Montel-logo-blue(Montel) European carbon prices slumped to fresh six-month lows on Thursday as a significant amount of supply was rapidly dumped on the market, catching participants by surprise, with technical indicators also encouraging selling.

The Dec 16 EUA contract was last seen trading at EUR 7.60/t, down EUR 0.21 on Wednesday’s close, though earlier in the session it plumbed EUR 7.40/t, its lowest level since 29 June.

“It looks like a single company selling a large volume in a hurry, although quite what the motivation for that is difficult to ascertain,” Louis Redshaw, of London-based Redshaw advisors, told Montel. “It could be a company determining that it should no longer own a longer-term investment in carbon, because the amount that was sold was very large and the speed at which it was sold was fast, not giving the market the opportunity to recover in between bouts of selling.”

Trade was brisk with 24.3m tonnes traded on Dec-16 alone, by far the most this year. “The volume suggests that it caused a few other people to participate in the market that might otherwise not have done, either because they saw value at the lower price or because they felt compelled to unwind their own long positions,” said Redshaw. Although prices recovered a little towards the close, EUAS weren’t “out the woods just yet”, he added. “A lot of people will have bought a lot of volume, or rather the market will be a long as a consequence of this selling interest, so the chances of a material recovery over the next few days are relatively slim.”

Earlier, analysts told Montel carbon is likely to see further short-term bearishness after breaking through technical support levels.

Technicals

Weak technical indicators and the expected resumption in auction supply next week also weighed on contracts, added an analyst at a London-based commodity trading house. “Technically we broke an uptrend line, which triggered stop losses and the initiation of fresh short positions,” said the analyst. “Also, people are aware that auctions resume next week so additional supply is expected.”

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