EU CO2 Lacks Direction Amid 2010 Permit Issuance

European carbon emissions futures lacked clear direction on Tuesday as traders seek news on the speed and volume of newly issued carbon permits coming to market.
EU Allowances for December delivery inched up 2 cents or 0.16 percent to 12.80 euros ($17.50) a tonne at 1355 GMT, having reached an intra-day high of 12.92 euros in early trade. Volume was heavy at 4,578 lots traded. Spot EUAs on France's BlueNext exchange were up 5 cents at 12.66 euros a tonne. A German spot EUA auction cleared at 12.62 euros on Tuesday.
The Dec-10 benchmark contract gained over two percent on Monday, as investors bought into the market after Friday's 3.4 percent drop.
"The market is trading sideways. There's not much direction. We're all looking for signs of industrial selling," said an emissions trader (Source: Reuters).

The EU's 27 member states face an end-of-the-week deadline to allocate 2010 permits to emit carbon dioxide to their respective industrial sectors.

Britain has started to distribute its EUAs to industry, a spokesperson for the Department of Energy and Climate Change said on Tuesday.

The Netherlands, Slovakia, Latvia and the Czech Republic have already issued, while Romania will do so on Friday, traders said.

PRESSURE

Last week, prices were pushed down by financial players that were expecting bearish momentum because of the new permit issuances, said Emmanuel Fages at SocGen/orbeo.

"Concretely, the 12.50 euro level will be tested in the first days of the week," Fages said in a research note.

Fages said market direction this week will depend on the timing and volume of selling. If most member states are late in distributing allowances and no large sell-off occurs, prices could stabilize or even rebound.

In the most likely scenario, most member states should stick to the EU deadline and industrial companies will not sell off surplus EUAs, preferring to hold for the future when prices will be higher.

However, if most member states distribute this week and industrials make profit by selling 2010 EUAs, prices could dive by a further 1-1.50 euros from current levels, Fages said.

German Calendar 2010 baseload power fell by 20 cents to 47.10 euros per megawatt hour, while crude oil fell below $79 a barrel.

U.N.-backed certified emissions reductions were unchanged at 11.27 euros a tonne.