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Joint auction rescheduled for 25 November, V14s still expected to clear

November 24, 2014 by Rahul Rana

CaliforniaCarbon.info, November 24, 2014: The first-ever California-Quebec joint auction, previously expected to be held on 19 November, has been re-scheduled to take place from 10AM-1PM PT, on November 25. Only bidders that were qualified to participate on 19 November can participate in the rescheduled auction. New bids will have to be submitted for the re-scheduled auction, and amendments to the bid guarantee will not be allowed.

The current auction will offer 23,070,987 allowances, and the advance auction will offer 10,787,000 allowances, with the floor price set at USD 11.34 and its equivalent in Canadian dollars. Exchange rates will be determined a day prior to the auction (i.e. later today). The auction results will be released on December 3, and allowances transferred to the CITSS accounts of the winning bidders on December 23.

The postponement of the auction caused some amount of panic among traders last Wednesday who may have been looking to the primary market to fulfill their December delivery obligations. Prices rose by $0.05 in the secondary market for December deliveries of the V2014 and the V2017. 770,000 V2014s were contracted to deliver next month between Wednesday and Friday, while the open interest also climbed from 14.9 million on Tuesday to 15.6 million on Thursday. However, the increased activity in the secondary market is not expected to significantly decrease interest in the primary market. Traders still expect the auction to clear with a similar, if not higher, bid ratio than the 1.14 we saw in August.

Two factors would likely influence demand for allowances in this auction: the impending increase in the price floor by 5% plus inflation; and the inclusion of the transportation fuels sector in the program from January, which would effectively double the market size. The increased price floor is expected to sit somewhere above the $12 mark, which would encourage bids in the $11-plus range.

Most traders have indicated that they expect the current auction to clear at prices between the floor and the $12 mark, although some have suggested that crossing that mark was also a possibility as entities from the transportation fuels sector could significantly increase demand.

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