EU carbon prices rise, defy lower energy

LONDON (Reuters) - European carbon rose 1 percent on Friday having fallen in early trade, defying softer energy prices, traders said.

EU Allowances for delivery in December rose 10 cents or 0.71 percent to 14.25 euros ($19.92) a tonne at 1055 GMT, having fallen to as low as 13.87 euros in early trade.

The Dec-10 contract was edging up, even though energy prices were declining -- a bullish sign for a once flagging market, traders said.

"The market is relatively firm, there is a lot of buying interest every time the market goes down," an emissions trader said.

Compliance players like utilities and industrials were on the buy side, while speculators were on the sell side, he added.

"It's hard for speculators to squeeze the market down."

Now that utilities have greater clarity for their planning after the release of EU verified emissions data for 2009 they have increased their power market activities and are directly hedging sales by buying carbon permits, analysts at UniCredit said on Friday.

"This assessment is supported above all by the fact that trading volumes and open interest have also increased significantly," they said in a research note.

Open interest on the Dec-10 contract rose by 2,843 to 163,940 EUAs on Friday, while volume was healthy at 4,018 lots.

"The contract's momentum is the strongest it has been since July 2008, when the price reached an all-time high of 30 euros," Brett Genus, broker at Evolution Markets, said in a note.

"For us, (this) demonstrates the authenticity (the contract) has lacked for a while," he said.

Prompt British natural gas futures fell by 0.20 pence to 32.60 pence per therm, while German Calendar 2011 baseload power lost 54 cents to 48.80 euros per megawatt hour.

U.S. crude oil futures fell toward $85 a barrel as concerns about U.S. demand re-emerged and the dollar strengthened, making imports more expensive for emerging economies where consumption is surging.

On Thursday, Dec-10 EUAs hit a 2010 high of 14.40 euros, a 70 cent or 5 percent rise on the week, but failed to hold those gains by the close as traders took profits late.

Benchmark Dec-10 CERs added 3 cents or 0.24 percent to 12.51 euros a tonne, setting the EUA-CER spread at around 1.74 euros.