Abstract
This study analyzes the relationship and the issues between iron ore market from demand and supply side. It empirically explains how and why the import iron ore price in China fluctuates through Baltic Dry Index, Dollar Index, iron ore production, volume of import iron ore, and also compares the forecast ability between Vector Error Corrected Model (VECM) and ARIMA model. This paper concludes the following finds. Firstly, there is no structural break and seasonality. The data are first degree stationary and have 1 cointegration relationship between variables. In addition, the impulse response function shows that the import iron ore price is positively sensitive to BDI and negatively sensitive to Dollar Index, and it reveals the fact that China has less power to influence the iron ore price even if it has been the largest buyer. Finally, forecast ability assessment shows that VECM outperforms ARIMA model.
Highlights
Steel plays a significant role in modern economy
This paper answers two questions, how import iron ore price will fluctuate and why the price fluctuates. It analyzes the global iron ore market from both supply and demand sides and finds out the market is formed by large buyers and sellers
It tries ARMA model and Vector Error Corrected Model (VECM) to understand the fluctuation of the price, and assesses the forecast ability of these two models
Summary
Steel plays a significant role in modern economy. As a complicated process, steel industry is influenced by upstream industries such as iron ore mining, coal mining, logistics, trading, steel facility, etc., and by downstream industries, for instance, construction, infrastructure, machinery manufacturing, transportation, automotive, railway construction, military, marine engineering industry etc., as well as political and economic policies in different countries. This paper mainly contributes a wide review about the demand and supply market of import iron ore and provides a comprehensive comparison between ARIMA model and VECM through the assessment of the ability of fitting and forecasting. It analyses different factors which are significant to the fluctuation of import iron ore price in China through different ways such as Granger Causality and impulse response function, and it gives suggestions that how Chinese government and steel industry to minimize the potential losses from import iron ore price fluctuation
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