CCA market reverses trends after breaking resistance last week

October 23, 2017 by Ronjoy Bezbarua

CaliforniaCarbon.info, October 23, 2017:

Weekly traded volume on California carbon allowances (CCAs) picked up (by 653%) last week as prices lost the gains seen the week before. The increased trading activity was also accompanied by higher inter-day volatility as weekly price range on the InterContinental Exchange (ICE) widened to USD 0.15.

The current front (V17 Oct17) and benchmark (V17 Dec17) saw price movements to the tune of USD 0.14 and USD 0.15 within the week to close at USD 15.23 and USD 15.27 on Friday, respectively. This represents a week-on-week drop of 0.52% and 0.59%, respectively.  With these losses, CCA prices have reverted to levels observed three weeks back effectively continuing the neutral momentum which had shown indications of trending upwards the week before last.

This again is congruent with our analysis that the neutral price momentum will persist in the market till the final week of October after which the November auction demand will exert a pull on prices creating a short-term trend. Last week’s trend reversal also coincides with our expectations of a virtual resistance level near USD 15.30 for the front contract. This resistance has materialized twice in the past – on the third week of July and first week of September.

Front-to-benchmark spreads widened by USD 0.01 last week causing the year-ahead implied funding rate  (annualized) to reach a high at 2.69%.

Weekly volumes rebounded sharply to reach 5,665,000 tons. The V2017 was the major contributor to trading activity, trading 4,298,000 tons with a contribution of 75.87%. V2020 traded 950,000 tons with a contribution of 16.77% while the V2016 traded 217,000 tons with a 3.83% contribution. Relatively smaller volumes of 150,000 tons and 50,000 were traded on the V2018 and the V2019, respectively. Delivery-wise, trading was mainly concentrated on two months – Dec17 and Oct17, which traded 4,640,000 tons and 1,024,000 tons, respectively, accounting for 81.91% and 18.08% of the total. Jun18 traded a minor 1,000 tons on Tuesday.

Open Interest was comparatively more subdued, having an overall positive net change of 929,000 contracts. New contracts were seen on two deliveries this week – Oct17(357,000 contracts added) and Dec17 (572,000). In terms of vintages, the highest changes were seen for V2016 and V2017 which saw positive net changes of 527,000 and 217,000 contracts, respectively. V2018, V2019 and V2020 saw a combined positive net change of 185,000 contracts.

The Ontario carbon market, in contrast to the California-Quebec market, saw a minor gain of CAD 0.02 for the week in terms of the current benchmark. OCA front and benchmark prices now stand at CAD 19.10 and CAD 19.19, respectively. No trade or any change in open interest was observed.

Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

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