EU carbon allowance prices were hit by a brutal sell-off in the week ending July 17, with trading volumes surging as prices fell sharply from a 14-year high.
EU Allowance futures contracts for December 2020 delivery on the ICE Futures Europe exchange traded in a range of Eur26.57/mt to Eur27.95/mt July 17, down from an intra-day high of Eur30.80/mt July 13.
Prices fell sharply to as low as Eur26.37/mt July 16, losing Eur2.24/mt or 7.8% in a single day's trading, on a day when the futures trading volume on ICE jumped to over 67 million mt including the contracts for 2020-2023 delivery.
However, after the July 16 sell-off, the bulls appeared to be back in force July 17, pushing prices back up to a high of Eur27.95/mt.
"Only on Wednesday had the price made a renewed bid to regain its 2006 all-time high of Eur31 per ton, though the attempt failed, as it already had on Monday," said German bank Commerzbank in a note to clients July 17.
"We saw no fundamental justification for the preceding surge, which we believed was driven purely by technical factors and led us to expect a pronounced price correction. Though the short-term outlook is gloomy because of the recession, we envisage rising carbon prices in the long term," it said.
London-based markets advisory company Redshaw Advisors said the pull-back from Eur30.00/mt may bring renewed buy-side interest.
"There were growing technical signs the recent rally had run out of steam and the resistance above Eur30/mt proved too strong for the bulls to overcome in recent days," Redshaw said in a note to clients July 16.
The pull-back in prices later in the week was "likely to pique the interest of Europe's industry who have been largely absent from the market recently as the rally accelerated," the company said.
S&P Global Platts Analytics said it expects EUA prices to average Eur28.00/mt in July, Eur29.00/mt in August and Eur26.00/mt in September, in its latest monthly European Emissions Trading System Market Outlook released July 13.
December 2020 EUA futures were quoted trading at around Eur27.90/mt in late trades July 17, up Eur1.29/mt on the previous day's close of Eur26.61/mt.
