Guangdong carbon permits recorded their fourth straight session of gains on Monday, rising 5.6% on the previous day to close at 24.62 yuan (€3.65, $3.96) as manufacturers moved to close short positions ahead of Friday’s auction.

The value of spot permits in the biggest of China’s pilot carbon markets has increased by 22% since last Wednesday, when the government announced it would auction 1 million permits on Mar. 27 at a minimum price of 35 yuan each.

“The upcoming auction will push up the secondary market price, then likely fall again afterwards. The price could hover around 26 yuan,” one trader said.

Market participants said cement factories had come to market to close out short positions rather than pay above market prices at the auction.

While the Guangdong market is considered to be long in general, some other manufacturers, predominantly iron and steel mills, are also short, and traders expect more demand to come between now and the compliance deadline in May.

Meanwhile, Shanghai permits dropped to fresh record lows on Monday, closing at 25.20 yuan, 0.20 yuan below the previous record set last week.

Shanghai prices have been falling steadily over the past month – from 35 yuan in early February – as more supply has come to market from emitters selling their surplus.

Observers say the price would have fallen much further were it not for some industrials with a huge surplus, such as Baosteel, ignoring the market instead of seeking to raise revenue from selling their extra permits.

By Stian Reklev – stian@carbon-pulse.com