Relative scarcity and convenience yield: evidence from non-ferrous metals

We study the relationship between convenience yield and relative scarcity in the non-ferrous metal market for the period January 2000-March 2015. We identify various sets of economic relationships for six major base metals, namely, aluminium, copper, lead, nickel, tin and zinc. Our bivariate and multivariate VARs and associated Granger-causality test results generally support the existence of a positive relationship between convenience yields of base metals and our relative scarcity measure. Furthermore, the time-varying characteristics observed in the results, especially during contango and backwardation periods, provide useful information to market players in developing inventory strategies.