LONDON: EU carbon fell 1.8 percent on Tuesday, as weaker power prices and a warmer weather forecast for most of Europe sent the carbon price back below 8 euros.
The front-year carbon product traded at as high as 8.10 euros during the day, 17 percent above the record-low of 6.90 euros touched last Friday, but failed to gather momentum, falling back to 7.85 euros by 1630 GMT.
The rally looked to be continuing when the market opened at 8.06 euros, up from Monday's 7.99 euros settlement, but negative signals from power markets and profit-taking sent the price crashing back to a low of 7.60 euros in the first 10 minutes of trade.
"We saw some short covering yesterday, but that seems to be over now. There was also a big drop in the power market overnight and it's dragging carbon down," one trader said.
The 2012 base-load German power contract fell 0.7 percent to 52.90 euros-MWh on EEX as a forecast for warmer weather curbed demand for prompt electricity and weighed on the rest of the power curve.
Traders said soaring oil prices and a successful Italian bond auction helped carbon prices to improve in the afternoon.
Italy paid record yields of nearly 8 percent to sell its three-year paper but defied sceptics to raise 7.5 billion euros, close to the top of the targeted 5-8 billion range.
"EUAs jumped a bit this afternoon on the oil and Italian bond sales and seem to have settled in a 7.85-8 euros range since," another trader said.
The carbon market also shrugged off a bearish note from analysts at Deutsche Bank, who Tuesday slashed their year-end price forecast for EUAs to 6 euros a tonne from 9 euros, citing to a worsening economic outlook and an oversupply of permits in the period 2013 to 2020.
Traders in the EU's emissions market expect the European Investment Bank to this week start the first sales from its pot of 300 million EUAs from the new entrant’s reserve.
"I expect carbon to bounce around in a 7 to 8.50 euro range for the next couple of weeks until we get some clear news from the Commission about the sale," the first trader added.
Volumes were steady with around 22 million EUAs of all vintages traded by 1630 GMT, but turnover was well down on the 50 million that changed hands on Monday.
In the secondary market for UN-backed carbon credits, the December 2011 CER also nudged lower, trading at 5.45 euros at 1630 GMT on Monday, down around 1.1 percent from the previous day's 5.51 euros close.
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