Spot CO2 allowances in the Hubei emissions trading scheme fell 8.6% in Wednesday trade on industrial sell-offs, deepening the market’s huge contango as a small number of speculators kept trading millions of forward contracts at unchanged levels.

The spot contract closed at 15.66 yuan ($2.41), down 1.48 yuan on the day to the lowest level seen in the Hubei market since it opened in Apr. 2014.

The contract has now lost a third of its value in the past three months.

Market participants said the drop is a reflection of manufacturers coming to market to offload their annual surplus after recently finalising their emission verification reports for 2015.

At the same time, a number of speculators previously active in Hubei have recently pulled out of the market for various reasons, market sources told Carbon Pulse.

Meanwhile, the May-17 forward contract closed Wednesday at 22.86 yuan, largely unchanged from the previous day. More than 7.1 million forwards changed hands, a fresh volume record for all the seven Chinese pilot markets.

Observers pointed out the disconnect between the two contracts, saying two or three traders were driving trade in the May-17 contract but had failed to prop up the spot contract in the process.

Since the forward contract was launched a week ago, 25.6 million units have changed hands as the price has risen 5.8%. In comparison, the spot contract has slipped 17.5% on the back of just over half a million permits traded.

By Stian Reklev – stian@carbon-pulse.com

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