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Market lulls ahead of the first joint auction of the year

February 21, 2017 by chandan.kumar

The CCA market remained sluggish this week as the auctions come into view. In terms of traded volume, the week turned out to be the most illiquid since the start of 2017. There was a total of 2,006,000, a 60% decline from the previous week, and 59% below the 4-week moving average of 4,984,000. The current vintage, V2017, dominated the traded volume with a share of over 94%. A single transaction of 55,000 took place for V2019, along with a couple of transactions at a cumulative total of 53,000 in for V2016.

In terms of delivery, contracts were mainly spread over the front and benchmark at 35% and 47% respectively. The current vintage also saw a single transaction of 5,000 for March 2017 delivery, a few transactions also traded further down the forward curve on the December 2018 delivery.

The open interest creation slowed from the previous week, there was a net change of 105,000 contracts. However, 91,000 contracts were liquidated from the current benchmark i.e. V2017, December 2017 delivery. This decline in volume combined with a falling open interest, and a minor fall in front price, suggest a burgeoning positive sentiment for the upcoming period. These indicators suggest that market participants are holding their position, and are waiting for the price discovery in the tomorrow’s auction.

The front price closed at $13.52 on Friday, $0.01 below the previous Friday’s closing of $13.53. This resulted in a $0.05 spread between the auction reserve price and front month contract value.  The week-on-week price change for the December benchmark was $0.01downwards, it settled at $13.73, the same $0.01 fall was observed all the way down the remainder of the forward curve.

The third week of trading for Ontario’s cap-and-trade market, Ontario Carbon Allowances (OCAs) witnessed a single transaction for the current year’s benchmark.  A total of 5,000 OCAs changed hands at US$ 13.97 (CA$ 13.97). The market closed at US$ 13.97 on Friday, US$ 0.04 above the previous week’s close of US$ 13.93, and US$0.24 above the current vintage equivalent in California.

Chandan Kumar (chandan@californiacarbon.info)

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