Causality on the steam coal market

ABSTRACT

The paper presents a detailed analysis of relationships between steam coal prices on the Atlantic and Pacific basins. The division took into account both the importers (Japan, Europe) and the exporters (South Africa and Australia). The data used in the analysis came from Argus Base and included time series from the period January 2002–August 2011. The analysis has revealed that there is a cointegration between the prices, which means that they are in a long-term equilibrium. The application of the Granger causality test has shown that the Pacific basin plays a dominant role in the process of shaping prices. Both the import prices and the pair Japan and Australia were causes for the remaining prices. Instantaneous causality was calculated using the directed acyclic graph (DAG) method. The results obtained indicate that there is no instantaneous causality for the pair of importers in Asia and Europe. The structural restrictions for the model yielded the impulse response function. All the analyses conducted indicate a dominant role of the Pacific basin in shaping the prices of steam coal.

KEYWORDS:

• Causality
• DAG
• market integration
• multivariate cointegration
• steam coal market

Notes

¹ The price index refers to transactions on the spot market with the delivery within 90 days. Using the information from both sellers and buyers, intermediary companies and brokers, analysts set the weighted average mean of those prices for coal of a given quality. Next these prices are standardized and the price obtained this way refers to the standardized quality of coal (6000 kcal/kg). This price refers to (NAR—net as received) and is given in American dollars per tonne of coal of a given quality.