Nature-based prices fall most in years as panic takes hold
Quantum Commodity Intelligence - Benchmark nature-based carbon prices fell by the largest amount in years on Wednesday as traders rushed to exit positions before the end of the year amid lower demand, sovereign credit issuances and a disappointing outcome at COP27.
Equity indices and commodities such as oil also fell sharply on Wednesday.
Quantum assessed the spot Nature Based Offset (NBO) at $3.17/tCO2e, down a whopping 37% on the day and at its lowest since February 2021.
The assessment was just below an offer of $3.18 heard in the OTC markets.
The latest fall, which comes after weeks of prices trending lower, effectively wipes out all the gains seen in the past 18 months on the back of increased investments in the voluntary carbon market.
On Wednesday, traders moved positions into the December 2023 N-GEO, as shown by an exceptionally large amount of spread trades.
Some sources cautioned that the losses were especially acute in the nearby December 2022 N-GEO futures as traders rushed to exit the contract, but sharp losses were seen further along the curve too.
"(It's) rolls ahead of expiry in a relatively thin market... The percentage swings are going to look huge at relatively small dollar tick changes," said one source.
The December 2023 N-GEO futures contract was assessed at $5.50/tCO2e, down $2.06 on the day, while the December 2024 and December 2025 contracts fell by more than $2.
"The screen is getting destroyed... must be people getting margin called or something," said another source, a broker.
Quantum raised the premiums for several key assessments, including all its CCB Gold indices, with some project vintages now seen trading at least $4 and as high as $7 above their respective N-GEO futures contracts.
On Tuesday, vintage 2017 Katingan credits were heard trading at $8.90 OTC.
Some traders have speculated that credits from certain projects are being sold much lower than others, which may have depressed the benchmark N-GEO.
"The supply side had been the issue and the demand was there, and now suddenly the supply looks like it will be coming back but the demand has completely disappeared," said a long-time industry observer.
"My concern is that this is exactly like what happened in 2010 and I think most people I speak to weren't around back then... They're quite optimistic, they're like 'oh the world needs carbon credits and all these net zero commitments', but at the end of the 2000s, all the companies, they weren't called net zero, they were called carbon neutral... It collapsed then and it could collapse again."
"When the economy is bad, people go into survival mode and businesses don't care about the environment anymore."
On the AirCarbon Exchange, two trades for the CET token were seen at $2.60, for a total volume of 10,400 mt, and FCC traded at $3.90 in 3,900 mt.
Block trades seen by time of publication:
10:46am CT: Dec 2022-Dec 2023 N-GEO Futures Spread 25kt @ -2.50
10:40am CT: Dec 2022 N-GEO Futures 25kt @ 3
10:40am CT: Dec 2022 N-GEO Futures 25kt @ 3
10:38am CT: Dec 2023 N-GEO Futures 25kt @ 5.55
10:16am CT: Dec 2023 N-GEO Futures 25kt @ 5.50
09:54am CT: Dec 2022 N-GEO Futures 31kt @ 3.25
09:52am CT: Dec 2023 N-GEO Futures 31kt @ 5.80
09:45am CT: Dec 2023 N-GEO Futures 100kt @ 5.75
09:43am CT: Dec 2023 N-GEO Futures 50kt @ 5.75
09:15am CT: Dec 2023 N-GEO Futures 25kt @ 6
09:15am CT: Dec 2023 N-GEO Futures 50kt @ 6
09:15am CT: Dec 2023 N-GEO Futures 50kt @ 6
09:07am CT: Dec 2023 N-GEO Futures 25kt @ 6
09:05am CT: Dec 2023 N-GEO Futures 50kt @ 6
09:04am CT: Dec 2023 N-GEO Futures 25kt @ 6
09:04am CT: Dec 2023 N-GEO Futures 25kt @ 6
09:01am CT: Dec 2023 N-GEO Futures 75kt @ 6
09:00am CT: Dec 2022-Dec 2023 N-GEO Futures Spread 70kt @ -3.10