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Secondary market activity thins as prices reach ten-week highs

June 28, 2014 by CaliforniaCarbon.info

CaliforniaCarbon.info, June 29, 2014: The secondary market for California carbon allowances (CCAs) seemed to slow down this week as forward delivery contracts on the InterContinental Exchange (ICE) traded very thinly. Contracts were struck for 266,000 CCAs, a similar number to the 210,000 from a fortnight ago. However, in the absence of large six- or seven-figure spread trades this week, this total was some way shy of the 5.7 million seen last week, or the 3.5 million three weeks ago.

This has coincided with prices for many combinations reaching their highest points since the second week of April. The current benchmark contract (V2014 delivering in December 2014), which these days matches the V2013 for price and this week contributed 56,000 to traded volume, cleared Friday at $11.98, the highest since Apr 15. The V2016 delivering in December 2015, which saw 200,000 contracted on Thursday, cleared at $12.30, the highest since Apr 15 but for an anomalous $12.40 on Jun 5.

Bid-ask mean values reported by several brokers in aggregate also reflect a gentle rise in prices. The $11.99 reported for Friday for the V2014 Dec 14 is the highest since Feb 21 ($12.04). The V2015 Dec 14 reported $11.97 on Friday, the highest since Feb 20 ($12.00). The V2016 Dec 15 reported $12.35 on Friday, the highest since Feb 21 ($12.36). In all three cases, these are the highest prices since the underwhelming discovery at the February CCA auction.

The modest secondary market volumes in recent weeks, apart from traders and compliance entities apparently spreading positions, suggest a general lack of liquidity. With prices moving in a narrow band (for instance, since the current benchmark last hit $11.98 on ICE, it has exchanged at no lower than $11.66; in the same time, the V2016 Dec 15 has gone no lower than $12.11) often between twenty and thirty cents wide, it seems market participants do not see as much advantage to taking short-term positions as might some of their counterparts in other emissions trading schemes.

For more information regarding this article, please write to contact@californiacarbon.info.

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