Scrutinizing multi-scale and multi-quantile interactions in commodity markets: A petrochemical industrial chain perspective

Abstract

From the perspective of the petrochemical industrial chain, this paper examines the interactions among five China's petrochemical commodity futures using three innovative methods - wavelet local multiple correlation, frequency connectedness framework, and quantile connectedness framework. The results show China's petrochemical markets exhibit a high degree of market integration at different time scales but decouple from international crude oil markets in the short term. The price dynamics of polypropylene (PP) and linear low-density polyethylene (LL) behave as the dominant factors to impact the price fluctuations of other commodities. The total information spillover level showcases a rapidly decreasing trend with the time scale increasing but a U-shaped curve across various quantiles and reaches the minimum at the 50th percentile. We further identified the net information transmitters and recipients in the industrial chain system and also explored the spillover shocks of two globally traded crude oil benchmarks, i.e., Brent and WTI, at different time scales and under different market conditions. They virtually always serve as net risk transmitters to China's domestic markets, but under extremely bullish market conditions, they are net influenced by the sharply upward trends of China's markets.