Prices rebound in the wake of positive auction result

August 28, 2017 by Ronjoy Bezbarua

California and Quebec’s 12th Joint Auction sold out for the second consecutive time, selling off all available allowances on both the Current and Advance Auction at a price well above the current Auction Reserve Price. Reacting emphatically to the news, CCA prices shot up on the secondary market throughout the week, gaining USD 0.46 on the current front contract (Aug 17). The auction earned over 1 billion in state revenue, greater than May’s auction despite a lower number of allowances on sale.

Prices across all contracts and vintages showed a significant recovery in light of Tuesday’s news from the downward trend observed prior to the auction. The current front (Aug 17) and benchmark (Dec 17) prices reached USD 15.16 and USD 15.28 respectively at the close of the week, rising 3% and crossing the USD 15.00 threshold for the first time since the start of the month.

Despite the week’s assertive price movements, trading volumes were somewhat subdued with a relatively slim 2.1 million tons clearing the exchange. The current vintage (V2017) regained its position as the highest contributor to overall volumes with close to 1.8 million tons of trade and a contribution of 85.04%. The only other traded vintage was the V2019 with 315,000 tons and a contribution of 15%. In terms of deliveries, the current benchmark (Dec 17) saw the highest trade with a contribution of 62%. Next month’s front contact (Sep 17) and 2018’s benchmark (Dec 18) saw trade of 396,000 tons and 250,000 tons respectively. The Jan 18 contract also saw trade for the first time since 7th June 2017.

With low trading activity observed across the week, Open Interest creation remained steady with only 674K contracts opened. The only two contracts which saw a positive net change were the current front (Aug 17) and benchmark (Dec 17) with 310,000 and 364,000 contracts created.

Ontario’s carbon market felt the knock-on effect of the CCA price increase. The OCA jumped by CAD 0.20 on Wednesday, reaching CAD 19.00 for the Dec 17 contract. Aided by an exchange rate favourable to the CAD, the Aug 17 and Dec 17 contract crossed the USD 15.00 mark within the week, closing at USD 15.11 and USD 15.21 respectively. Zero trading activity was observed again on the market, however.

Billy Hamshaw (billy@californiacarbon.info)

Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

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