SK Market: Korean CO2 prices soar to fresh highs as supply squeeze persists

Published 07:18 on March 15, 2016  /  Last updated at 12:34 on March 15, 2016  /  Asia Pacific, South Korea  /  No Comments

Prices in South Korea’s emissions trading scheme rose to new all-time highs in Tuesday trade as sellers refuse to budge until there is more clarity on whether the government will step in to address the market's allowance scarcity before the June 30 compliance deadline.

Prices in South Korea’s emissions trading scheme rose to new all-time highs in Tuesday trade as sellers refuse to budge until there is more clarity on whether the government will step in to address the market’s allowance scarcity before the June 30 compliance deadline.

Korean Allowance Unit (KAU) prices on the Korea Exchange increased 9.8% to close at 18,450 won ($15.53/€13.99), up 1,650 won on the day.

Meanwhile, Korean Carbon Units (KCUs), the offsets in the Korean ETS, moved up 2.8% to 18,500 won.

Trading volumes were low with 7,000 KAUs and 2,529 KCUs changing hands.

Illiquidity is a regular feature in the market, which is normally void of willing sellers due to what they say is an insufficient number of permits.

Industry claims the ETS is under-allocated by 10-20%.

The price rise continues because the market is still short and it remains uncertain whether the government will make any adjustments, traders told Carbon Pulse.

One broker said that some firms in the cement and petrochemical industries have calculated that they are short by more than 10%, which is the maximum limit companies can borrow from future vintages.

“They are seeking to buy now even though prices keep going abnormally high in order to avoid (non-compliance) penalties, which are much higher,” the broker said.

“We expect more carbon permit supply, but not until the end of June, which is when the compliance deadline is,” the broker added, predicting an increase in demand over the coming months.

Last month, the responsibility for the ETS was shifted to the Ministry of Strategy and Finance, a move most market participants expect might lead to an increase in supply.

However, so far the new regulator has not announced any changes to the scheme’s settings.

By Stian Reklev – stian@carbon-pulse.com

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