Multiscale Price Lead-Lag Relationship between Steel Materials and Industry Chain Products Based on Network Analysis

Abstract

As two main steelmaking materials, iron ore and scrap steel have different price lead-lag relationships (PLRs) on midstream and downstream steel products in China. The relationships also differ as the time scale varies. In this study, we compare the price influences of two important steel materials on midstream and downstream steel products at different time scales. First, we utilize the maximal overlap discrete wavelet transform (MODWT) method to decompose the original steel materials and products price series into short-term, midterm, and long-term time scale series. Then, we introduce the cross-correlation and Podobnik test method to calculate and test the price lead-lag relationships (PLRs) between two steel materials and 16 steel products. Finally, we construct 12 price lead-lag relationship networks and choose network indicators to present the price influence of the two materials at different time scales. We find that first, most scrap steel and steel products prices fluctuate at the same time lag order, while iron ore leads most steel products price for one day. Second, products that exist in the downstream industry chain usually lead to iron ore. Third, as the time scale becomes longer, the lead relationships from steel materials to steel products become closer.

Contemporaneous causality among price indices of ten major steel products

“…[8][9][10] Given that steel products are connected to a wide range of economic sectors and financial markets, it is only natural that price series, as well as their trends and interrelationships, have attracted enormous interest and attention from policy makers and market participants from not only China but also from around the world. [11][12][13][14][15][16][17] Despite the fact that time-series modelling techniques have been found to be popular and effective in the literature for analysing lead-lag relationships between economic variables based on the idea of Granger causation [e.g. Xiarchos 18 and Xu and Zhang 19 ], the issue of contemporaneous causal relation inference needs to be solved for comprehensions of contemporaneous consequences resulting from interventions.…”

“…8–10 Given that steel products are connected to a wide range of economic sectors and financial markets, it is only natural that price series, as well as their trends and interrelationships, have attracted enormous interest and attention from policy makers and market participants from not only China but also from around the world. 11–17…”