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Regional premiums in nonferrous metals markets
Author(s) -
Gilbert Christopher L.
Publication year - 2021
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22245
Subject(s) - database transaction , measure (data warehouse) , spot contract , transaction cost , price premium , component (thermodynamics) , business , economics , econometrics , monetary economics , microeconomics , financial economics , willingness to pay , computer science , futures contract , physics , database , thermodynamics , programming language
Abstract Peculiarities of the LME contract structure give the impression that exchange spot prices measure transaction prices paid by consumers and received by producers. This impression can be misleading. Transaction prices also include a regional premium that can account for a substantial component of the full price. In well‐supplied markets, premiums measure the cost of intermediating exchange warehouses and consumers. In periods of tight demand they reflect the urgency of consumer requirements. I use a Markov‐switching model to analyze the regional and temporal variation in aluminum and zinc premiums.