Causality between Metal Prices: Is Joint Consumption a More Important Determinant than Joint Production of Main and By-Product Metals?

Research on metal price determinants has been driven by increasing price volatilities and realization of metals as financial assets. A sound understanding of metal prices enables producers, consumers, policy makers and traders to anticipate and better prepare themselves for short and long-term price trends. Metal prices are related to each other via their nature of either being jointly produced or jointly consumed. While the effects of joint production of metals have been the subject of increased analysis lately, the effects of joint consumption on metal prices have yet to be studied systematically. Therefore, we aim to analyze the effects of both joint consumption and joint production on the causality relationship between metal prices. In doing so, we use the Toda Yamamoto approach to conduct pair-wise Granger-causality tests between various metals that are either jointly produced or jointly consumed. Our results indicate that joint-consumption of metals has a significant impact on the Granger-causality relationship between metals and that it is indeed an important determinant of metal prices.