CCAs trade on high note as May auction approaches

May 1, 2017 by chandan.kumar

After a relatively lacklustre performance on the third week of April, prices and volumes for CCAs ramped up in what summed up to be a very positive 4th week of April. The average weekly ICE prices for the April 2017 front increased to USD 14.28 before closing on the 26th of April which was the day the front changed to May 2017. The new front prices for May 2017 had a positive increasing trend and maintained an average of USD 14.35 for the week and closed at a weekly high of USD 14.38.

Volumes for the previous week made an impressive recovery from the downward trend seen during the previous weeks and the market saw 5,315,000 tons traded which was an impressive 97% more than the week before. The spread of volumes across various vintages became wider last week as compared to previous weeks where the current vintage-V2017 had more than a 90% contribution. Trading for the V2015 vintage, after an absence of trading the week before, stood at 185,000 tons. The V2016 vintage, however, witnessed a 90% drop in absolute volumes from the week before to 10,000 tons traded. In terms of absolute volumes, the current benchmark, V2017, witnessed an increase of 60% with 4,020,000 tons traded. The 2018 vintage saw a similarly positive performance with 900,000 tons traded and also had the second highest contribution to overall volumes traded, at 17%. This was especially impressive, considering that the 2018 vintage saw no volumes traded the week before. The 2019 vintage also saw the volumes traded shoot up by 179% to 200,000 tons. These trends suggest a positive market sentiment owing to the upcoming joint auction as well as the recently passed Assembly Bill 378.

Moving on to the contracts in terms of delivery, the current benchmark (Dec 2017) saw its contribution to volumes traded increase to 70.27%. The other contracts were spread across April 2017, current front (May 2017), Jun 2017 and Dec 2018 with a share of 6.87%, 2.82%, 9.69% and 10.35%, respectively, in terms of volumes traded. Volumes for the current front started trading after the front change on 26th of April, prior to which the May 2017 front did not see any trade. Volumes increased in terms of absolute volume for June 2017 as well as the current benchmark. With an absence of trade for the week before, trading commenced for Dec 2018 at 550,000 tons traded.

Open interest creation, in keeping with the previous trend, continued to improve with a net change of 836,000 contracts. Significant contributors were the Dec 2018 and Jun 2017 contracts with 450,000 and 265,000 contracts created respectively and make up 85.5% of the total change.

The current benchmark, Dec 2017, continued to rise throughout the week after registering a minor drop of USD 0.03 on Monday at USD 14.28 from the closing price of the week before. The weekly close of USD 14.38 was higher than the closing price of the week before by USD 0.07 or 0.5%. The weekly average was USD 14.32 which was again higher than the week before by USD 0.04. Following a similar trend, the Ontario Market increased the closing weekly price to USD 14.30 from the previous weekly close of USD 14.26. As seen earlier, the USD prices of the Ontario Carbon Allowances (OCAs) do not give an accurate picture due to fluctuations in the exchange rate which is again dependent on a multitude of other far more significant factors. A close look at the CAD prices, however, gives a far more accurate and positive outlook and it was seen that the prices continued to increase without falling a single day. The weekly close at CAD 19.54 was the highest CAD price ever reached by the OCAs. Conversely, there were no volumes traded for the week as compared to the performance seen the week before.

Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

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