CN Markets: Guangdong announces CO2 auction as permits hit all-time lows

Published 12:48 on June 2, 2015  /  Last updated at 19:53 on March 16, 2017  /  China, China's Pilot Markets  /  No Comments

Guangdong will auction 3 million CO2 permits at a minimum price of 40 yuan ($6.45) each on June 10, it announced Tuesday, as the secondary market price plunged to 16.50 yuan, their lowest levels ever.

Guangdong will auction 3 million CO2 permits at a minimum price of 40 yuan ($6.45) each on June 10, it announced Tuesday, as the secondary market price plunged to 16.50 yuan, their lowest levels ever.

The auction will be the last of four planned auctions for the 2014 compliance year, with the minimum price set at 25 yuan on the first one, then rising gradually to 40 yuan.

It is doublful whether the auction will attract any buyers, as allowances are available in the secondary market for far less, with prices having fallen 9.4% on Tuesday alone to their lowest value since the market started in 2013.

At the previous auction, held on Mar 27, Guangdong sold 422,000 of 1 million permits up for sale at a minimum price of 35 yuan.

The Guangdong market, China’s biggest, is riddled with over-allocation, and prices have more than halved over the past three weeks on the back of fewer than 15,000 permits traded – although the high of 32.98 yuan in early May was the result of some speculators pushing prices up.

The provincial government has moved to rid the ETS of over-allocation to the cement sector and is promising further market fixes but has yet to deal with the market surplus effectively.

But Guangdong is not alone is suffering from an allowance glut.

In Tianjin, prices plummeted 10% on Tuesday to close at 17.06 yuan, it’s second-lowest ever, despite Monday’s news that the government had ruled ineligible more or less every offset credit that has traded in the market so far.

The CCER ban had little price impact because emitters are currently awaiting the outcome of their emission monitoring reports this month, and those will have a bigger impact on positions.

“But overall, they have allocated too many allowances,” one trader told Carbon Pulse.

The little demand there is in Tianjin is usually met in the non-transparent OTC market, according to traders, leaving the exchange among the most illiquid of the Chinese pilots. Since the beginning of April, only 6,300 allowances have traded.

In Shanghai, prices clawed back some lost ground on Tuesday, climbing to 19.60 yuan, after having dropped 23% to an all-time low of 18.10 yuan on Monday.

Fewer than 2,000 permits traded in Shanghai Tuesday, compared to 38,000 the previous day, as demand had mostly been saturated even though some manufacturers that have had a bad production year were offering allowances very cheaply, hoping to improve their cash-flow, according to market participants.

Some 30,000 CCCERs traded on Shanghai’s exchange on Tuesday, though prices were not disclosed.

Meanwhile, the Beijing Environment Exchange reported Tuesday that the first pre-CDM CCERs traded in the capital’s carbon market. A total of 850 CCERs changed hands at 22 yuan each.

Most pre-CDM CCERs are ineligible in Beijing because the administration rules out offsets pre-dating Jan 1, 2013.

By Stian Reklev – stian@carbon-pulse.com

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