European carbon prices experienced a sharp decline on Thursday, reaching six-month lows, as a significant amount of supply flooded the market, catching participants off guard. The Dec 16 EUA contract dropped to EUR 7.60/t, down EUR 0.21 from the previous day, hitting its lowest level since June 29.
According to Louis Redshaw of Redshaw Advisors, it appears that a single company sold a large volume of carbon allowances in a hurry. The motive behind the sudden selling pressure remains uncertain, but it could be related to the company's decision to divest from long-term carbon investments. The substantial volume and speed of the sell-off prevented the market from recovering between each round of selling.
Trading activity was brisk, with 24.3 million tonnes traded on Dec 16 alone, the highest volume seen this year. This surge in volume likely prompted other market participants to engage, either due to perceived value at the lower price or the need to unwind their own long positions. Although prices slightly recovered towards the end of the session, Redshaw cautioned that the market was not yet out of the woods and a substantial recovery in the next few days was unlikely.
Analysts also noted weak technical indicators and the anticipation of auction supply resuming next week, which further weighed on carbon contracts. Breaking through the uptrend line triggered stop losses and the initiation of fresh short positions. Additionally, market participants anticipated additional supply from the upcoming auctions, which added to the bearish sentiment in the short term.
