Cointegration between high base metals prices and backwardation: Getting ready for the metals super-cycle

Juan Antonio Galán-Gutiérrez, Jose Labeaga and Rodrigo Martín-García

Resources Policy, 2023, vol. 81, issue C

Abstract: This paper is devoted to test agents’ behavior in the markets of hard commodities by trying to distinguish between managing future price structures to hedge their positions and speculating in on prices. We do a triple analysis: cointegration on the time series, structural breaks over the full time series and panel data. The analysis of the full series and the identification of structural breaks allows us to discover the connection between high prices and the negative futures price structure (backwardation) in rising prices scenarios of tin, copper, aluminium, and zinc. Moreover, we obtain that the base metals full matrix (price and futures price structure) is cointegrated in our analysis that uses panel data methods. We believe that these results are important for agents in the markets, as commodity traders or brokers, to maximize profits in their hedging positions.

Keywords: Normal backwardation; Cointegration; Base metals; Hard commodities; Futures price structure (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:81:y:2023:i:c:s0301420723001216

DOI: 10.1016/j.resourpol.2023.103413

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