The story has been updated to include closing permit prices on Wednesday for Beijing and Shanghai, which both fell to all-time lows.
Emission allowance prices have faced downward pressure from new offset issuances in most of China’s pilot carbon markets over the past two weeks, despite steady demand from traders that has helped absorb the fresh CCER supply.
The NDRC on May 27 issued around 3 million CCERs, of which around 1 million were for emissions cuts carried out after Jan. 1, 2013, and hence eligible for compliance in most of the seven pilot schemes.
Since then, nearly 1.5 million CCERs have traded in Shanghai, Guangdong and Beijing. Offset prices are not always reported, but on the Beijing exchange, deals have gone through in the 18-22 yuan ($2.90-$3.55) range.
“There is demand for CCERs, mainly from compliance companies, which is good news for project aggregators and funds,” one analyst said, although other sources said a share of the volume had been picked up by brokers.
The offset supply is likely to have contributed to depressed allowance prices in most of the markets, where impending compliance deadlines have failed to spur last-minute buying interest.
Almost 1 million of the new CCERs have been sold to companies in Shanghai the past fortnight, including the biggest offset deal in that market so far featuring trading firm Timing Carbon selling nearly 190,000 offsets to a local compliance buyer at an undisclosed price.
CCER sales have contributed to a 38% drop in Shanghai permit prices. Benchmark SHEAs dropped to a fresh low of 17.90 yuan on Wednesday after the Shanghai carbon exchange announced that another 145,000 CCERs had traded, down from 28.90 yuan in early May.
Meanwhile, more than 300,000 of the new CCERs have been sold to buyers in the illiquid, volatile Guangdong market, which has also seen record lows recently with allowance prices falling to 16.50 yuan on June 2.
Permit demand is low in the over-allocated Guangdong market and the price often moves significantly on daily volumes of less than 100 allowances traded.
And nearly 200,000 of the CCERs have been picked up by participants in the Beijing ETS, where liquidity has blossomed in recent weeks as prices hovered between 45-47 yuan.
However, on Wednesday Beijing allowances fell to 44.16 yuan, their lowest levels since the market opened.
In the other four markets, CCER demand remains limited.
In Tianjin, the allowance price has fallen to 13.82 yuan, below the current market value of CCERs and the lowest price ever recorded in any of the Chinese markets so far.
By Stian Reklev – stian@carbon-pulse.com
