Formation of Industrial Metal Markets : Fundamental Theory, Co-movement and Time-Varying Dependencies

In this study, we jointly analyze a) the impact of fundamentals on commodity prices, b) the co-movement of commodity markets and c) the differences in the commodity markets' interrelations, given certain economic conditions, using a Markov-switching Global Vector Autoregression Model (MS-GVAR).The dynamic properties of the industrial metal markets show strong interrelations between the demand and price variables, especially under a non-crisis scenario, indicating the fundamentals are still important in modern markets.However, under an artificial crisis scenario, as well as under regime-constellations of four historical points in time, corresponding to the financialization, the global financial crisis, a period of "calm" commodity markets and a COVID-19 scenario, the co-movement in crisis is more pronounced, suggesting the commodity prices are more connected during volatile periods in time