EU carbon dioxide allowances crashed to a nine-month low Friday, as speculators unwound long positions ahead of data due next week and expected to signal weak demand, traders said.
EU Allowance futures contracts for December 2014 delivery on the ICE Futures Europe exchange in London fell as low as Eur3.71/mt ($5.09/mt) Friday, down from Eur5.24/mt at the previous close, a 29% fall.
One trader said participants were throwing in the towel on bullish speculative bids, particularly ahead of data from the European Commission next Tuesday which was expected to show a sharp year-on-year drop in regulated CO2 emissions in 2013.
"People who are long [are] capitulating as it goes through key levels -- traders mostly. They think emissions data is going to be bearish, as the UK numbers were yesterday," the trader said.
The UK's Department of Energy and Climate Change on Thursday released data showing the UK's CO2 emissions from power generation fell 7.5% last year.
The numbers appeared to spook the market, particularly as the broad consensus for the EU as a whole was for a drop of around 3-4% in CO2 emissions regulated by the EU Emissions Trading System in 2013.
The UK's power sector emissions estimate matters for the carbon market, because power generation is the largest single sector regulated by the EU ETS, which regulates emissions from Europe's power plants, factories and airlines.
However, the UK's figures showed the overall net drop in CO2 emissions in 2013 was a more modest 2.1%.
Thursday's UK emissions figures contributed to a sharp drop in carbon prices, and the bearish momentum continued Friday.
EUA futures trading volumes hit record highs on ICE Thursday, with at least 96 million mt traded and prices dropping sharply.
"It is all about sentiment I guess, given that people know that the system is long even after backloading," a trader said.
The EU approved legislation in February which delays, or backloads, a total of 900 million EUAs from government auctions in 2014 to 2016, in a bid to help curb a long-running surplus in the system.
Since the surplus is estimated at over 2 billion mt, the backloading move is seen as a temporary measure to avoid a price collapse while the regulator works on long-term market reforms.
December 2014 EUA futures on ICE rebounded slightly to Eur4.14/mt by 1215 GMT Friday, down Eur1.10/mt from the previous close.
