Interest in the Hubei carbon exchange’s new forward contract beat market expectations on Wednesday as a total of 6.8 million allowances for May 2017 delivery traded, the biggest daily volume yet in any of China’s pilot cap-and-trade systems.

The forward contract closed at 21.65 yuan ($3.34) after the exchange had set the opening price at 21.56 yuan based on weighted averages in the spot market over the past four weeks.

According to the exchange, 68,000 lots of 100 allowances each traded, taking the value of the forward trades to 150 million yuan in the first day of dealing, more than most of the other exchanges have seen since their inception.

Hubei allowance prices have been under pressure in recent weeks amid over-allocation and uncertainty over how the conversion to the national market will take place.

The Hubei spot contract ended Wednesday at 18.99 yuan, recovering somewhat from Tuesday’s record lows of 18.25 yuan on the back of a sell-off from cement producers with surplus allowances.

Observers were hopeful that a strong forward price in coming weeks could underpin the spot market, but some noted the inherent risk.

“If the spot price keeps falling the forward contract will get into trouble,” one observer told Carbon Pulse.

Demand came primarily from electricity generators, which tend to be short and are subject to government making ex-post adjustments to their allocation levels.

By Stian Reklev – stian@carbon-pulse.com

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