Cointegration between high base metals prices and backwardation: Getting ready for the metals super-cycle

This paper is devoted to test agents’ behavior in the markets of hard commodities by trying to distinguish between managing future price structures to hedge their positions and speculating in on prices. We do a triple analysis: cointegration on the time series, structural breaks over the full time series and panel data. The analysis of the full series and the identification of structural breaks allows us to discover the connection between high prices and the negative futures price structure (backwardation) in rising prices scenarios of tin, copper, aluminium, and zinc. Moreover, we obtain that the base metals full matrix (price and futures price structure) is cointegrated in our analysis that uses panel data methods. We believe that these results are important for agents in the markets, as commodity traders or brokers, to maximize profits in their hedging positions. •Base metals spot and futures prices are cointegrated.•Cointegration in prices is present on more financialized metals: copper and aluminum.•Structural breaks and panel data causality tests confirm time data series cointegration.