Abstract
AbstractIn addition to being the world's greatest consumer and producer of industrial metals, China now also features the most actively traded industrial metal futures contracts worldwide. To examine China's role in the global price formation process of industrial metal futures markets, we use a sample of 29 futures contracts traded on exchanges in the United States, the United Kingdom, India, and China. We estimate vector autoregressive models and conduct variance decompositions, which are then visualized in the form of networks. The results indicate that China, despite its role as key actor in both real and financial industrial metal markets, is a price taker.
Highlights
China’s rapid industrialization and rise as an economic power have been accompanied by a voracious appetite for natural resources
The Shanghai Futures Exchange’s (SHFE) steel rebar futures contract has grown into the most traded commodity futures contract worldwide. In light of these developments, this paper investigates the role of Chinese price leadership in industrial metals futures markets
As the first part of the analysis, we consider the entire sample of industrial metal futures contracts explained in the data section
Summary
China’s rapid industrialization and rise as an economic power have been accompanied by a voracious appetite for natural resources. This is visible in the country’s demand for industrial metals. As the country continues its process of urbanization and investment in infrastructure, China has evolved into the world’s top consumer of refined aluminum, copper, nickel, steel and zinc. Chinese consumption makes up forty percent of the world’s demand for lead and nickel and fifty percent of the world’s demand for aluminum, copper and zinc (World Bank, 2018). In 2017, roughly half of all steel, refined aluminium and zinc, and forty percent of refined copper and lead were produced in China (World Bank, 2018)
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