Spot NZUs shed over 10% of their value this week to close Friday at NZ$5.15 ($3.79), their lowest level since mid-December, as sellers stepped in to offload surplus permits.

The New Zealand permits have drifted continuously since March, and fell another 60 NZ cents this week amid a rush of fresh supply, market observers said.

Around 500,000 NZUs changed hands over the week, according to traders, more than double average weekly volumes in recent months.

“All we are seeing at present is selling by those who have slightly more carbon than they need at present and this will come to an end at some point,” brokers OM Financial said.

“Whilst we are somewhat surprised to see this market move to the low $5’s, we would be more surprised to see it move below $5 given it has almost been a 25% correction in six weeks.”

Few traders expect prices to bounce back anytime soon, though, especially after the government on Thursday signalled it might be preparing to boost supply in the future, by launching a process to design an NZU auctioning mechanism.

“I think the tone of that document will depress prices,” one market participant said.

The government announcement stressed it would take at least 18 months to finalise a new supply mechanism, but there are already enough permits sitting in the registry to satisfy all market demand for the rest of the decade.

By Stian Reklev – stian@carbon-pulse.com