Shanghai CO2 allowances fell another 10% on Wednesday, the maximum allowed daily price movement, even as buyers stepped in to pick up permits at record low levels.

SHEAs ended Wednesday at a fresh record low of 4.20 yuan ($0.65), down half a yuan on the day, as smaller emitters continued to offload their annual allowance surplus.

The price has now dropped some 61% since Mar. 25.

Over 55,000 allowances traded Wednesday. That was well above the combined 60,000 units traded over the previous three sessions, which itself was well above the low turnover typically seen outside of the weeks running up to the June compliance deadline.

The uptick in volume came as buyers stepped in to take advantage of the price crash, according to observers.

“Both institutions and capped companies are buying because allowances are so cheap at these levels,” one trader told Carbon Pulse.

Like in the other Chinese pilot markets, most of the emitters covered by the Shanghai ETS have little experience or interest in carbon trading, and have not developed strategies to maximise the value of their allowances, which they are given for free by the government.

Instead they are happy to step into the market once or twice a year when their overall position is clear.

Most companies are over-allocated, meaning they are content to sell at almost any price.

Meanwhile, more sophisticated traders – including some electricity generators that are short – are buying at current levels because they expect the price to rise when the 2016 allocation plan is released later this year.

By Stian Reklev – stian@carbon-pulse.com

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