WCI carbon steady despite auction leaving units unsold

Published 22:34 on May 31, 2015  /  Last updated at 13:40 on June 1, 2015  /  Americas, Canada, US  /  No Comments

WCI carbon allowances were little changed this week despite May's auction leaving some units unsold and clearing near the bottom of market expectations.

WCI carbon allowances were little changed this week despite May’s auction leaving some units unsold and clearing near the bottom of market expectations.

Results from the auction – the third held jointly between California and Quebec – were released mid-day Thursday. Front-year vintage allowances were fully subscribed and cleared at $12.29, above the $12.10 floor price but about 25 cents below recent spot rates in the secondary market.

Traders noted prompt prices initially dipped slightly on news of the result, but then recovered to pre-auction levels over the course of trading.

Benchmark Dec-15 CCA futures settled Friday at $12.64 on ICE, just a cent below their value on the day before the May 21 auction, after dipping to as low as $12.61 in the days ahead of the auction results.

“There was a lot of activity after the numbers came out … about a million tons traded,” said Anthony D’Agostino, director of emissions markets for RBC bank, adding that the heavy turnover had subsided by Friday.

Traders thought the auction attracted more participants than expected, but pointed out that the clearing price of $12.29 still landed near the bottom end of $12.25-12.65 expectations.

D’Agostino pointed out that the market had had to absorb a bigger volume than the previous sale, with 77 million units snapped up compared to just 73.6 million in February, when prices cleared at $12.21.

Ashley Lawson, an analyst at Thomson Reuters Point Carbon, had expected this higher volume to result in a lower clearing price versus February rather than the 8 cent increase.

“So seeing somewhat higher demand at the May auction does indicate some sort of underlying vigor in the market,” she said, adding that she did not expect the auction to have much impact on the secondary market,

One trader said he was surprised that the advance auction of vintage 2018 allowances was undersubscribed, but did not think the shortfall in buying – about 9.8 million sold out of 10.4 million available – was significant.

Yet Point Carbon’s Lawson said the shortfall represented a continuation of a recent trend.

“The demand for those allowances has been going down over the last six months.”

By Robert Mullin – news@carbon-pulse.com