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Relationship of iron ore price with other major commodity prices

Author

Listed:
  • Yoochan Kim

    (Western Australian School of Mines, Curtin University)

  • Apurna Ghosh

    (Western Australian School of Mines, Curtin University)

  • Erkan Topal

    (Western Australian School of Mines, Curtin University)

  • Ping Chang

    (Western Australian School of Mines, Curtin University)

Abstract

Understanding the interdependency of commodity market pricing system is very important for running a successful mining business. Much of the iron ore price is derived from the prices of other commodities. This study investigates the relationship between monthly iron ore prices against 12 other monthly commodity prices or indices including LNG, aluminium, nickel, silver, Australian coal, zinc, gold, oil, tin, copper, lead, and Commodity Price Index (Metals) in both bivariate and multivariate perspectives. An augmented Dickey-Fuller (ADF) test is carried out to ensure that all the time series commodity prices and index are non-stationary. In multivariate modelling co-integration tests, observation is made on how many co-integrations exist out of 12 co-integrations for each respective lag between 0 and 45 months’ period. It is observed that 6 out of 12 commodity prices follow co-integrations in 1-month lag and continues in a cyclic pattern until 27 months after which it disappears. There are 3 commodities which continuously co-integrate with iron ore price change at all lags. For bivariate modelling, vector error correction model (VECM) estimation is carried out to prove the evidence of short-run responses to long-term relationship between iron ore prices and it is observed that oil, copper, and Australian coal prices have influence on and from iron ore prices. Then, Granger causality test is carried out to verify the VECM result by testing bi-directional causality between iron ore prices and copper, oil, and coal prices. It has been concluded that the iron ore price has bi-directional influence on oil, copper, and Australian coal prices and vice versa.

Suggested Citation

  • Yoochan Kim & Apurna Ghosh & Erkan Topal & Ping Chang, 2022. "Relationship of iron ore price with other major commodity prices," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 35(2), pages 295-307, June.
    • Handle: RePEc:spr:minecn:v:35:y:2022:i:2:d:10.1007_s13563-022-00301-x
    DOI: 10.1007/s13563-022-00301-x
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    References listed on IDEAS

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    Cited by:

    1. Biswas, Pritam & Sinha, Rabindra Kumar & Sen, Phalguni, 2023. "A review of state-of-the-art techniques for the determination of the optimum cut-off grade of a metalliferous deposit with a bibliometric mapping in a surface mine planning context," Resources Policy, Elsevier, vol. 83(C).
    2. Kim, Yoochan & Ghosh, Apurna & Topal, Erkan & Chang, Ping, 2023. "Performance of different models in iron ore price prediction during the time of commodity price spike," Resources Policy, Elsevier, vol. 80(C).

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