California carbon drops as power demand softens

29 January 2014 17:00 Source:ICIS

California carbon allowances (CCAs) retreated Tuesday as buying interest from the power sector waned, traders said, forcing a more bearish outlook on CCA prices.

The Dec ‘14 Vintage 2013 saw a drop to $12.15/tonnes of CO2 equivalent (€8.86/tCO2e), a loss of $0.40/tCO2e from Monday’s $12.55/tCO2e price, according to traders. The Dec ‘14 Vintage 2014 also dipped $0.40/tCO2e to $12.15/tCO2e. Both contracts had been rising since last week as power companies drove demand in the market.

“The strong buying that we saw last week is gone now, so the market has come off again,” said a broker at a brokerage firm.

CCAs prices had been boosted as the power sector bought more permits over concerns that a drought in California may reduce the amount of CO2-free hydroelectricity generated in the state.

The effect was especially visible on the Vintage 2015 and 2016 contracts. Market participants said demand dropped for the Dec ‘15 Vintage 2016 contract, which had been dealt for $12.68/tCO2e on Monday.

This came as power companies tapered off their carbon hedging, forcing a more bearish outlook on carbon in the short term.

“I’m not terribly surprised by the drop, but it is a surprise that it happened all in one day,” said a trader at a trading house.

Prices could dip more as interest is tempered ahead of the Air Resource Board (ARB) auction on 19 February, they said. The event could spur more interest in the market and increase liquidity to the secondary market.

Market participants said the volume dropped too, as buying stalled on the secondary market. Dan X. McGraw

By Dan X. McGraw