In fact, most of these metals are sourced from highly industrialized countries. Importantly, the growing thirst for industrialization has subsequently increased the demand for industrial inputs, especially industrial metals. This industry, widely dominated by the industrial metals, provides basic inputs for various sectors, ranging from the manufacturing and communication to health and education. (2019) note that the mining industry, among others, forms a sound basis for developing an economy. In terms of revenue, for instance, iron ore exports in Australia contributed about $63 billion (16.3 per cent of total exports) in 2017, 3 while it accounted for 80 per cent of export revenue generated in Brazil in 2018. Other heavily industrialized countries are notable suppliers of one or more of these metals too. 2 China leads the supply of aluminium, while South Korea is mainly known for lead. To mention a few, Australia and Brazil are the major exporters of iron ore in the world 1, while Indonesia dictates about 37.2 percent of the world nickel supply. One surprising fact is that most of the world's largest suppliers of industrial metals are highly industrialized countries. First, they serve as sources of revenue for countries that supply them. Importantly, we can analyze their relevance in two ways. ![]() The demand for these industrial metals, which also necessitates their supply, is on the increase. ![]() Notably, these final goods are in high demand globally since the ability to procure them can result in the enhancement of welfare. Unlike precious metals, which mainly have their use in jewelry and store of value, industrial metals are increasingly important in the industrialization process as they serve as pertinent inputs to the production of basic needs, such as consumer durables, electrical and electronic products, chemicals and construction, among others. Although most of these studies focus on gold (see Aye et al., 2016 Aye et al., 2017 Lucey et al., 2017 Salisu et al., 2019, etc.), a few others consider other precious metals like silver, palladium and platinum too (see Adekoya et al., 2021c Salisu et al., 2019 Jaiswal and Uchil, 2016). In recent years, however, attention is now being given to tradable commodities, especially precious metals. Specifically, a majority of the studies have largely focused on stocks and related financial assets as suitable hedgers against risk for a long time (Al-Nassar and Bhatti, 2019 Bampinas and Panagiotidis, 2016 Salisu et al., 2020b). Studies have attempted to consider various assets that can act as a diversifier for investors in the face of rising inflation risks. In order to reduce its detrimental impacts, the question of what can serve as a hedge against inflation risks has been an important question among investors and policy makers. Theoretically, in addition to reducing the returns on assets, inflation reduces the purchasing power and the standard of living of economic agents (Christou et al., 2018 Yeap and Lean, 2017). However, inflation has been identified to affect these objectives (Wang et al., 2011 Yeap and Lean, 2017). A rational investor aims to maximize returns and minimize possible risks. Inflation has been judged by many to be a source of market risks that can endanger investment returns. Important investment and policy decisions can be made respectively by commodity investors and policy makers based on the findings established in this study. Lastly, the inflation-based predictive model offers a better forecast performance for the commodity returns in most cases than the historical average model. However, the average hedging performance based on the panel data analysis is susceptible to financial shocks. We also note that on country-specific basis, the hedging performance of the metals is stronger after the 2008 financial crisis. When asymmetries are accounted for, the inflation-hedging ability of the metals improves. Summarily, we find that each of the industrial metals can hedge inflation risks in at least one country. The depth of industrialization process of these countries and the increasing level of financialization of commodity markets motivate us to consider the hedging potential of these industrial metals. We examine this possibility for seven (7) globally traded industrial metals in twenty (20) most industrialized countries of the world. ![]() Can inflation risks be hedged by industrial metals? This is the poser that this study intends to address.
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