February 12, 2018 by Abhilasha Fullonton
(Last edited on Monday, 19th February to rectify a typo in the 2nd paragraph. New statement:Dec18 to Dec20 deliveries saw spreads of USD 1.07; Previously written:Dec18 to Dec19 deliveries saw spreads of USD 1.07)
CaliforniaCarbon.info, 12th February, 2018: California Carbon Allowances (CCAs) market had a slower week with liquidity declining significantly when compared to the previous week. On Monday (02/05) prices picked up as most deliveries saw a 1-cent increase while Feb18 is the only delivery that saw a 2-cent increase. The following day prices continued on the upward trend however with a drastically uneven price hike along the forward curve ranging from 2-cents on front contract to 11-cent hike on Dec21 contract. Mid-week, CCAs saw a significant price increase on some futures contracts i.e. 16-cent hike on Dec21, whereas a drop of 2-cents and 1-cent on front and benchmark respectively. On Thursday (02/08) allowances saw an even drop of 4-cent along the forward curve. As of Friday (02/09) front stands at USD 14.84 and benchmark stands at USD 15.27 which is a 2-cent and 1-cent weekly drop respectively.
There has been a noticeable change in spread between different deliveries. Front to benchmark constituted a 43-cent difference as of Friday (02/09) compared to 42-cents last Friday (02/02). Post-auction delivery (Mar18) to benchmark spread remained unchanged since last Friday at 34-cents. Dec18 to Dec19 saw spread of 54-cents which is a 10-cent gain since last Friday while Dec18 to Dec20 deliveries saw spreads of USD 1.07 which is a 19-cent increase since last Friday.
Trades also indicates some entities are looking into long-term contracts because 2018 saw the beginning of a new compliance period. Trades are increasing for future deliveries because entities are planning ahead since jurisdictions under the WCI have to meet compliance obligations at the end of 2021 for compliance period 3 (2018-2020).
Volumes traded this week are lower indicating market has slowed down in pre-auction period. It is worth pointing out that no trades took place on Friday (02/09) since it was the bid-guarantee deadline. Trades concentrated between V2017, V2018 and V2019 while V2018 had the largest share of trades at 76.71%. The weekly volume traded totaled to 5,153,00 tons compared to 9,651,000 tons last week. V2018 traded a total of 3,953,000 tons while V2017 continues to see activity, albeit lower interest than last week, as entities traded up to 200,000 tons (3.88% of the total). Trades are picking up for V2019 as it accounted for 1,000,000 tons (19.41%) of the total.
Feb18 continues to be the focal delivery this week for volumes. Feb18 trades have increased from 2,450,000 tons last week to 3,450,000 tons while Dec19 overtook Dec18 in trades and accounted for 1,000,000 trades this week compared to 200,000 tons last week. Mar18 and Dec18 are the only other deliveries that saw trades with 425,000 tons and 278,000 tons respectively. This reinforces our statement that some entities are planning ahead and positioning themselves around compliance obligations deadline for compliance period 3.
Open Interest changes
A total of 6,788,000 OI contracts have been added to the market since last week. About 1,503,000 contracts were added for Dec18 while Jun18 saw an addition of 110,000 contracts. OI increased by 300,000 contracts over last week. Around 110,000 contracts opened up for V2017 while interest in V2020 contracts has also increased with 1,000,000 new contracts opening up over the week.
We continue to see OCA price volatility this week as it started out with an average of 19-cent increase followed by a 6-cent increase. While intra-day prices were not as volatile when compared to the week before, prices across the curve vary by 1 or 2 cents. On Friday OCA bounced back by an avg. of 4-cents however while V17 Feb18 saw a 3-cent price hike, Nov18 saw a 6-cent increase. OI remained unchanged throughout the week with 3,000,000 for Feb18 while no volumes were traded. As of Friday (02/09), OCA prices for V17 Feb18 stand at CAD18.74 and price for V17 Dec18 stands at CAD19.22.
Abhilasha Fullonton (email@example.com)