Changing interactions on markets for competing commodities: the case of natural and synthetic rubber prices

Prices on commodity markets are often correlated because they react to similar cycles in the economy. This is especially true for commodities which are inputs into the same products. And even more so for commodities which are considered here as partial substitutes. Prices of such commodities are considered to be highly correlated. This paper investigates the leads and lags in prices for natural rubber (NR) and synthetic rubber (SR). It concludes that prices of NR lead prices of SR by about three to six months, depending on the country concerned. This influence is, however, changing over time, as can be estimated when using the Kalman filter approach for a model with time-varying parameters. The relationships are reducing in significance over time: both positive and negative coefficients tend to zero, implying that both markets are increasingly separated. The influence of demand on the other hand remains quite stable. A notable exception is the EU. The two markets, NR and SR, are increasingly insulated and the consumption side continues to play a steady and significant role.