Supply drought causes surprise price surge in Tianjin carbon market

Published 12:23 on July 2, 2015  /  Last updated at 12:23 on July 2, 2015  /  China, China's Pilot Markets  /  No Comments

A lack of willing sellers have pushed prices in the over-supplied Tianjin ETS up by 36% in the past week, forcing short firms to dip into the more expensive offset market to find the supply they need.

A lack of willing sellers have pushed prices in the over-supplied Tianjin ETS up by 36% in the past week, forcing short firms to dip into the more expensive offset market to find the supply they need.

Tianjin allowances closed Thursday at 16.67 yuan ($2.69), up 8.5% on the day and 36% week-on-week from 12.26 yuan.

The increase is surprising as the market is thought to be hugely over-allocated, illustrated by the price plunging to 11.20 yuan on June 18, an all-time low for any of the Chinese pilot markets.

Demand in the market is low, with a meagre 5,240 permits traded in total in May and June.

The problem, according to traders, is that the surplus doesn’t come to market, either because the holders are uninterested in emissions trading or because they are reluctant to sell at such low levels in case prices go higher as the compliance deadline nears.

On Thursday, one short emitter, a local steel firm, bought 115,000 CCERs for 16 yuan each, according to sources with knowledge of the deal. The deal was not disclosed by the Tianjin exchange on close of business, but helped push permit prices up, the sources said.

CCERs eligible in the Tianjin market normally fetch around 15-20 yuan, meaning allowance prices could climb higher.

Tianjin is one of only two Chinese markets yet to carry out compliance for 2014 emissions.

The original deadline was May 31, but officials notified market participants that it would be postponed as verification of emissions covered under the scheme would only be finalised that month, leaving the government needing more time to make final calibrations to the system.

The new deadline was unofficially set for June 30, but that date has come and gone, and at the moment there is no information on when the true-up will be carried out.

The other market yet to finish compliance is Hubei, which has set a new deadline of July 10.

Beijing, Shanghai and Shenzhen all finalised the compliance procedures this week while Chongqing and Guangdong finished on June 23.

By Stian Reklev – stian@carbon-pulse.com

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