LONDON: European carbon prices began 2012 with a steep fall of almost 10 percent on Tuesday, extending last week's losses on sliding German power prices and a warmer-than-expected holiday period.
Front-year EU Allowances (EUAs), trading on ICE Futures Europe, dropped as much as 82 cents to 6.50 euros, the lowest level seen since December 19.
The benchmark carbon contract ended at 6.60 euros, 9.8 percent below the bourse's previous settlement of 7.32 euros from December 30.
"Carbon's opened the year in a bearish mood, mainly on weak German power," one trader at a European utility said.
A second trader said carbon had also come under further pressure from a bumper issuance of 5.5 million CER offsets by the UN on Tuesday, as well as a German government auction of 300,000 spot allowances on EEX.
The bellwether EUA futures fell 10.9 percent last week in illiquid trade as weak energy prices weighed on carbon during the quiet holiday trading period.
"We were hoping traders would come in today with a bullish spirit, but the first thing they do is sell EUAs below 7 euros and CERs below 4 euros," the trader added.
The ICE ECX December 2012 CER contract fell to an intraday low of 3.82 euros, a three-week trough and 40 cents or 9.5 percent below last Friday's settlement price.
"EUAs are leading this fall, and there's definitely some volume behind this move," the trader said, referring to EUA turnover of over 30 million units across all vintages at the time of writing.
Most of the volume was executed via screen trades on ICE, meaning it was difficult for market participants to determine who was behind the selling.
EUAs have now retraced the 28 percent gain made on December 20, the day the EU Parliament's environment committee support a measure to withhold 1.4 billion permits in the third phase of the EU Emissions Trading Scheme.
"I don't think anyone expects the full 1.4 billion to be eventually agreed, but even half of that would be tremendous," said a second carbon trader at a bank.
Traders and analysts say carbon's underlying fundamentals remain weak, exacerbated by higher-than-normal temperatures over the holiday period, and evidence that falling German power prices are leading utilities to unwind positions.
German baseload 2013 power fell to a two-week low of 51.90 euros/MWh but recovered slightly to settle 18 cents down at 52.19 euros/MWh, while summer 2012 UK gas prices dipped 2.7 percent to 52.90 pence/therm.
Only crude oil was higher, with the benchmark front-month Brent contract adding $3.33 to $110.69/barrel on bullish Chinese manufacturing data for December and rising tensions between Iran and the West.
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