نظریه ذخیره سازی، موجودی و نوسانات در فلزات پایه در بورس فلزات لندن

The theory of storage, as related to commodities, makes two predictions involving the quantity of the commodity held in inventory. When inventory is low (i.e. a situation of scarcity), spot prices will exceed futures prices, and spot price volatility will exceed futures price volatility. Conversely, during periods of no scarcity, both spot prices and spot price volatility will remain relatively subdued. We test these predictions for the six base metals traded on the London Metal Exchange (aluminium, copper, lead, nickel, tin and zinc), and find strong validation for the theory. Including Chinese inventories reported by the Shanghai Futures Exchange strengthens the relationship further. We also introduce the concepts of excess volatility, inventory-implied spot price and inventory-implied spot volatility and illustrate some applications.

The aim of this paper is to examine the six base metals traded on the LME (aluminium, copper, lead, nickel, tin and zinc), and examine the relationship between price, volatility and the quantity held in inventory, for both the spot and future markets. A relationship, believed to exist for many storable commodities, is predicted by the Theory of Storage. Firstly we review briefly the base metals and future trading. We then review the theory of storage and its literature across a number of commodities. Next, we review our data and discuss choices for the units of inventory. In our ‘Results’ section, we present our results for the relationship between price and inventory, and then for the relationship between volatility and inventory. We discuss some application in the ‘Discussion’ section followed by a conclusion.

Working's theory of storage, and its two key predictions related to price and volatility, originally formulated for wheat, and initially validated in other agricultural markets, has been shown here to be strongly validated in the case of the six base metals traded on the LME. We find a strong non-linear relationship between the adjusted-spread of the forward curve (based on a ratio between spot and futures prices) and inventory. In addition, we have shown that the relationship between spot volatility and inventory is strengthened further by introducing the concept of ‘excess volatility’. This is analogous to the spread, in that it represents the excess of spot volatility over futures volatility. We have shown that the inventory figures from LME warehouses alone suffice to generate the two strong relationships above. The addition of Chinese inventories figures at the SHFE strengthens the relationship, highlighting the increasing importance of China in metal demand and trade, and refuting some suggestions that Chinese inventory data cannot be trusted. The addition of inventory figures from other exchanges and trade organisations does not further improve the relationship. Finally, based on our novel concepts of inventory-implied spot price and inventory-implied spot volatility, we see no evidence that the recent allegations of major market players withholding inventory is substantiated, to the extent that LME prices are behaving as if the full inventory figures are available to the market.