Positions increase early for 2018 deliveries as floor price impact weakens

October 30, 2017 by Ronjoy Bezbarua

CaliforniaCarbon.info, October 23, 2017:

The California carbon allowance (CCA) market picked up significantly last week as traded volumes increased by over 205%. Much of the trading saw interest increase for deliveries in 2018 while the Dec17 delivery was diluted by nearly 1.6 million contracts. Over the last four weeks, the Dec17 open interest has declined by 4,550,000 while deliveries in 2018 have seen an increase of 8,775,000 contracts; lead by Mar18 with 4,100,000. Positioning into the year ahead has occurred earlier this year compared to the previous years likely because the secondary market stands high over next year’s floor price which allows traders the freedom to roll in October without consideration for the December-January price spike.

The increased trading activity of last week was also accompanied by higher inter-day volatility as weekly price range on the InterContinental Exchange (ICE) widened to USD 0.16. The current front changed on Friday to V17 Nov17 while 1,416,000 contracts expired on the Oct17 across all vintages.

The current front (V17 Nov17) and benchmark (V17 Dec17) saw price movement to the tune of USD 0.16 and USD 0.15 within the week to close USD 15.33 and USD 15.34, respectively. This represents a week-on-week jump of 0.56% and 0.46%, respectively. With these gains, the front price has crossed the current virtual resistance level at USD 15.30. Front-to-benchmark spreads widened by USD 0.01 on Friday last week causing the year-ahead implied funding rate (annualized) to reach 2.67%.

Weekly volumes traded more than doubled to reach 11,636,000 tons on Friday. The V2017 was the major contributor to trading with 8,538,000 tons exchanged. The V2018 traded 2,526,000 tons with a contribution of 21.71% to the week’s liquidity while the V2020 traded 527,000 tons contributing 4.53%. Relatively smaller volumes of 45,000 tons were traded on the V2016. Delivery-wise, trading was mainly concentrated on four months – Dec17 (6,716,000 tons), Mar18 (1,750,000), May18 (1,250,000) and Jun18 (1,000,000), accounting  for 57.72%, 15.04%, 10.74% and 8.59% of the total. Minor volumes were seen for Oct17, Nov17 and Dec18.

Open interest creation was also equally significant, having an overall positive net change of 2,709,000 contracts. New contracts were seen on five deliveries this week – Oct17(608,000 contracts added), Mar18 (100,000), May18 (1,250,000), Jun18 (2,250,000) and Dec18 (100,000). Conversely, the Dec17 contract had a dilution of 1,599,000 contracts. In terms of vintages, V2017, V2018 and V2020 saw positive net changes of 954,000, 500,000 and 1,255,000 contracts respectively.

The Ontario carbon market saw a major gain of CAD 0.52 for the week in terms of the current benchmark. OCA front and benchmark prices now stand at CAD 19.66 and CAD 19.71, respectively. No trade or any change in open interest was observed.


Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

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