LONDON, April 4(Reuters) - EU carbon prices fell 3.7 percent in thin trade on Friday, following power and gas markets lower.
The December 2014 EU Allowance (EUA) contract traded at 4.73 euros at 1341 GMT, down 18 cents on Thursday’s close.
“Gas and power are down and we are just seeing some squaring off of positions ahead of the weekend. (Carbon) volumes have been pretty weak so it hasn’t taken much to move prices lower,” a carbon trader said.
German power prices for next year delivery traded at 33.75 euros/megawatt hour (MWh) down 0.5 percent on Thursday’s close.
The power contract has skirted round 9-year lows this week on the back of weak demand and rising renewable power supplies.
Meanwhile British day-ahead wholesale natural gas prices lost more ground on Friday due to an expected dip in demand because of a warmer weather outlook.
Many large utilities sell power forward several years in advance, buying the fuel and carbon units needed to generate the electricity at the same time to lock in margins.
However, if power prices drop, those companies may choose to buy the power back, earning them a profit but meaning they are also likely to sell the fuel and carbon permits back into the market.
Volumes in the carbon market were weak on Friday. Around 13.5 million EUAs of all vintages, including auction volumes, had traded across Europe’s main exchanges by 1341 GMT.
Earlier on Friday Germany sold 2.352 million spot EU carbon permits for 4.75 euros a tonne each.
The sale attracted bids worth a total 19.4 million units.
The European Commission on Friday confirmed Bulgaria has started handing out its free carbon permits to industry for 2014.
Firms regulated by the EU Emission Trading System will get 6.6 billion free allowances between 2013 and 2020 to help them compete with rivals in other regions which have looser environmental regulations.
Seven countries, including Poland and Romania, have still yet to award the 2014 allowances, the Commission data showed. (Reporting by Susanna Twidale; editing by Keiron Henderson)