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Prices kick-start upwards as traders grasp value opportunity in the New Year

January 9, 2017 by Harry Horner

(CaliforniaCarbon.info, Jan 9, 2017) Front prices leapt $0.19 in this the first trading week of the New Year, whilst the annual benchmark rose $0.21 to close at $13.46. A similar logic applies as when we were beneath the floor in 2016: to a reasonable degree of certainty, these sub-floor prices likely represent the lowest possible opportunity for obtaining allowances from the market this year. It would take a highly adverse court ruling in CCC vs ARB, or a ‘force majeure’ equivalent, to put prices beneath where they started the year now.

For these reasons it must have made good sense for market agents to try and transact wherever possible in last week’s price region, and the total weekly traded volume of 5,654,000 represents these endeavours. Although this is a relatively small volume to be spread over a $0.20 price increase, this points to a strong seller’s market with heavy bid lists.

As we have seen since mid-December, the now current V2017 dominated trading with 71% of the share, also V2016 and V2015 saw 15% and 4% respectively. There was also some rare activity on V2019, although now the annual goalposts have shifted we can perhaps expect higher volumes going forward on this vintage.

Otherwise, there was trading right across the front 3 months: 23%, 6% and 8%, respectively. The new December benchmark has also started gaining momentum: 2,606,000 of the 3,541,000 trades seen on the date were for the V2017. The increase in open interest was strong at 1,895,000 for the week. The creation rate for the front month was particularly high at 60%, likely due to the relative lack of existing contracts on this date.

Meanwhile in Ontario’s pilot year alone before joining the WCI market, trading is not yet listed on the Industry’s exchange. We may have to wait until the first auction of the year and the first allowances enter the market, before we see an exchange erected for the province’s market.

Harry Horner – (harry@californiacarbon.info)

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