ChinaCarbon.net.cn, June 12, 2017: Guangdong Provincial Development and Reform Commission offered 500,000 allowances at a floor price of Y15.15/ton on 5 June 2017. However, the auction had to be cancelled due to insufficient interest as only 15 out of the 500,000 tons offered saw bids.
The secondary market seemed to have anticipated a poor performing auction a week in advance as prices fell 8.6% to Y13.98 on 31 May 2017. Following the auction results, prices moved upwards closing up by 2% the very same day, again by 0.9% the next day, and finally ending the week at Y14.27 with a week-on-week rise of 4.5%.
The auction floor in Guangdong is set to 80% of the weighted average of the secondary market prices over the last three months from the auction. This can open up the price floors to market influence especially if strict monitoring of secondary market trading is not in place. Liquidity remains healthy as GDEAs have traded six-figures since the auction proving that compliance demand still exists despite the failed auction and price incentives in the secondary market have diverted it this time around.
A cancelled auction also means that the supply for this compliance year has been cut short by 500,000 tons. It will be interesting to note if this shortens the market enough to see allowances trade over the y15.15 mark before the compliance deadline is met.
Rahul Rana (firstname.lastname@example.org)