EU Carbon Erases Losses as Trading Surges at End of Session

European Union carbon permits closed little changed, after trading surged at the end of the day and prices erased earlier losses.

Permits for December fell 0.4 percent to close at 6.99 euros ($9.32) a metric ton on the ICE Futures Europe exchange in London. The December contract earlier today declined as much as 5.7 percent to the lowest in more than two months. EU allowance prices have plunged 61 percent in the past year on concern that supply would overwhelm demand.

Trading in the benchmark December contract rose to 1.4 million tons in the final 30 minutes of the session. That’s almost double the 777,000 tons traded in the half an hour from 12.30 p.m., the next busiest slot of the day. U.K. natural gas for the six months through September, the summer contract, rose 1.6 percent after opening lower than yesterday’s close. Carbon sometimes tracks gas because utilities need about half as many permits when burning the fuel as for coal.

Barclays Plc (BARC) today cut its growth forecast for 2011 EU carbon market emissions to 0.3 percent from 1.3 percent as economic production in countries that share the euro rose 0.7 percent in the fourth quarter, compared with the same period in 2010, according to official EU data.

“We estimate that emissions stagnated or at best rose slightly last year,” Eugen Weinberg, head of commodities research at Commerzbank AG (CBK) in Frankfurt, said in an e-mailed research note dated March 23. A main reason for the slow rise is mild weather, which led to a “sharp decrease in energy production in the fourth quarter.” Full-year energy production dropped 4.9 percent, Weinberg said, citing Eurostat data.

Oversupply

Phase three of the EU carbon program, the eight years through 2020, will probably be oversupplied by 1.17 billion tons of allowances once the full use of United Nations offset credits is taken into account, Trevor Sikorski, a Barclays Capital analyst in London, said today in an e-mailed research note.

That’s more than half of annual emissions, which were at about 1.94 billion tons last year, he said.

Sikorski raised his forecast for prices in the second half of this year by 14 percent, or 1 euro, to 8 euros a ton, because falling coal prices have encouraged use of that fuel by power utilities.

“The market has weathered the first-quarter storm of supply remarkably well, with utility buy side coming online stronger and helping to push open interest in EU allowance contracts,” Sikorski said in the note. “Buoyed by the better buy side, we expect prices to keep trading in the 7-euros-to-9 euros-a-ton range for the coming quarters.”

United Nations Certified Emission Reduction credits for December fell 0.3 percent to 3.79 euros a ton on ICE.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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