CCA trading nearly ground to a standstill last week, reflecting what brokers say has become a recurring trend ahead of the WCI ’s quarterly auctions.
“Generically, we’re in the summer doldrums,” said Anthony D’Agostino, director of emissions markets for RBC, referring to the recent slowdown in the market. “But everything just shuts down ahead of the auction.”
The August 18 auction – the third of the year and the fourth jointly held between California and Quebec – will offer more than 73.4 million current vintage CCAs with a floor price of USD$12.10 (CAD$12.08).
Additionally, an advance auction of Vintage 2018 will offer 104 million allowances set at the same floor.
This week saw only Vintage 2017 trade on the secondary market, accounting for all of the 850,000 units changing hands on ICE. On Thursday, prompt-year was offered at $12.73.
Brokers contend the WCI is oversupplied and enables compliance entities to comfortably meet their needs by bidding into low-priced auctions while relying only incidentally on ICE to clean-up their positions.
According to some industry players, that market behavior accounts for the persistent spread between the auctions and the secondary market, making current ICE prices a poor predictor of where auctions will clear – even in the days leading up to an auction.
Traders give the example of the previous auction in May, where the 2015 vintage cleared at $12.29 while secondary markets traded in a similar range as today.
“The system’s been in place long enough that you would think that there would be convergence between the auctions and the market,” said RBC’s D’Agostino. “But that doesn’t seem to be the case.”
Market participants were confident the auction for the current vintage will be fully subscribed, but were less sure about the advance offering, given that during May’s auction 6% of Vintage 2018 was left on the table.
Traders might only get a clearer signal of price direction from the next quarterly auction in November, weeks after compliance entities are required to surrender their full complement of 2013-2014 emissions units.
By Robert Mullin – firstname.lastname@example.org