Hedging pressure dynamics in LME zinc futures markets

Abstract

Estudio sobre la presión de cobertura en el mercado de futuros de zinc de la LME y su impacto en los precios. Utilizando datos semanales de 2018 a 2024 y modelos econométricos, se evalúa cómo las posiciones netas de cobertura influyen en los precios. Aunque la presión de cobertura tiene cierto poder predictivo, su impacto en los retornos es limitado y depende de otras dinámicas del mercado. La investigación aporta ideas sobre el papel de la cobertura en la formación de precios y la gestión de riesgos en el mercado de futuros de zinc.

This study explores the hedging pressure dynamics within the London Metal Exchange (LME) zinc futures market, emphasizing the impact of hedging activities on futures prices. Zinc, an essential industrial metal, is subject to price volatility influenced by various market participants, including producers, consumers, and speculators. The research investigates the relationship between net hedging positions and zinc futures prices, particularly in the context of the LME's shift to the Commitment of Traders Report (COTR) format. By analyzing weekly data from January 2018 to May 2024, the study employs econometric models to assess how changes in hedging pressure influence futures prices. Results indicate that while hedging pressure does exhibit some predictive power, its impact on returns is limited and influenced by other market dynamics and structural changes. This research contributes to the understanding of market behavior and risk management strategies in the zinc futures market offering insights for market participants on the role of hedging in price formation