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Market holds shape as May auction sells out

May 30, 2017 by Ronjoy Bezbarua

The California-Quebec carbon market saw its first fully subscribed auction this year as results of May’s auction were announced by ARB last week. The Current Auction was oversubscribed with a bid-to-cover ratio of 1.23, clearing all 75.3 million CCAs on offer at USD 13.80 – USD 0.23 above the current floor price. The Advanced Auction also performed significantly better than previous auctions, selling 22% of 2020 vintage allowances on offer at the auction reserve price of USD 13.57. The results of both auctions reflect a heightened sense of confidence in the program since the appeals court’s dismissal of business groups claims in April.

With participants anticipating a positive turn-out, in spite of the politics surrounding the program’s design beyond 2020, the secondary market did not witness any dramatic post-auction blips in volume and the trends for CCA prices remained unchanged throughout the week. The May 17 contract for the current vintage held the previous week’s price tag of USD 14.04 throughout the week. Switching to the current front on Friday, the Jun 17 held a USD 0.01 premium to the previous month’s contract closing the week at USD 14.05. The Dec 17 benchmark rose ever so slightly, clearing on Friday at USD 14.22. With the bulk of volume trading on the current vintage, this week saw a total of 6,632,000 tons change hands. The V2018 was the only other vintage to trade with 700,000 tons cross the exchange, an increase of 45,000 tons from the previous week.

In terms of delivery, the current benchmark saw an increase in trade and was the dominant contributor in volume with 2,807,000 tons clearing. The new current front, Jun 17, saw 2,200,000 tons being traded while the Dec 18 contract saw 1,300,000 tons. The previous front, May 17, before the front change, witnessed trade of 225,000 tons. Finally, the March 18 front also saw 100,000 tons traded.

Open interest creation continued to see positive change with a net change of 4,764,000 contracts from the week before. The Jun 17, Dec 17 and Dec 18 were the largest contributors with net changes of 1,640,000 tons, 1,584,000 tons and 1,200,000 tons respectively.

The Ontario market saw its prices decline to CAD 19.15 from the previous weekly close of CAD 19.25. However, an exchange rate favourable for the CAD resulted in the USD prices remaining constant and settling at 14.23. The OCA current benchmark saw an increase in traded volumes with 570,000 tons traded.

Billy Hamshaw (billy@californiacarbon.info)

Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

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