The Empirical Research On Price Forming Mechanism Of Non-Ferrous Metals Futures In China

This paper is mainly concentrate on the price forming mechanism of non-ferrous metals futures in China. The research on the futures price is always important part of the futures study. The 3-month contract settlement prices for copper, aluminum and zinc are decided by the balance of supply and demand. These metals are in the same macroeconomic environment, but their price volatility is different. China produces and consumes the most quantity of copper, aluminum and zinc in the world. China imports more and more metals year by year. Non-ferrous metals are the necessary material in infrastructure building, so they are strategy resources for China. In this situation, the paper researches the price forming mechanism of non-ferrous metals futures in China.Based on the achievement about futures price forming mechanism having received by scholars, this paper applies the cost-of-carry model as the basis, pointing out factors which impact futures price.These factors are spot price, interest rate and inventory level, applying co-integration and ECM analyzing the impact. Considering that China imports large quantity of metals every year, LME futures price is introduced to the model. The next step is contrast the former result to the later result. In order to get more details, this paper applies VAR, IMF and variance decomposition to analyze the mechanism, attaining the attribution of each factor to futures price volatility.From the empirical result, we know that the model having LME futures price is better.That is to say, LME non-ferrous metals futures price has impact on futures price in China. Based on the residual plot, the result of the latter model is better than the former before this financial crisis, but after this financial crisis began, the results of these two models are similar. The good economic situation of China lessens the impact on non-ferrous metals futures price. LME non-ferrous metals future price has the largest impact on contract settlement price for copper, the coefficient is 0.222. And the smallest impact on contract settlement price for aluminum, the coefficient is 0.058. And the middle impact on contract settlement price for zinc, the coefficient is 0.187.This is consistent with Chinese practical conditions. China imports large quantity of copper and exports some aluminum. According to the VAR model consisting of non-ferrous metals futures price, spot price, interest rate and LME non-ferrous metals futures price, LME non-ferrous metals futures price has the most important impact on Chinese non-ferrous metals futures price, except the impact from its own lag item. Among the contracts, LME non-ferrous metals futures price has the largest impact on Chinese copper price, and the smallest impact on Chinese aluminum price.