Copper Market Research Articles

Commodity market stabilization: A comparison of simple and optimal intervention strategies in the world copper market

With the publication of the Brandt Report, international commodity policy has again become an important issue. Commodity stabilization agreements have been proposed as a means of stabilizing producers' incomes and/or redistributing wealth to less developed economies. This paper examines, in the context of a single market, the extent to which prices can be stabilized, the potential costs of such a scheme, and whether this redistribution would be achieved. By comparing the bandwidth rules that have been proposed with optimal stabilization rules, we find that significant stabilization is possible but expensive and that bandwidth rules are likely to prove inadequate because they cannot anticipate.

Cyclical disequilibrium in the US copper market

Cyclical disequilibrium in the US copper market

Optimal stabilization of the copper market: The problem of information

This paper investigates the scope for stabilizing commodity prices by buffer stock interventions. Optimal control is used, rather than simulation, to evaluate the scope for intervention at best. Applications to a world copper market model show that substantial but extensive gains to stabilization are possible. These gains cannot be realised by traditional bandwidth decision rules. An important difficulty is setting the level at which prices should be stabilized. The lack of this information severely reduces the achievable gains.

Stabilizing the International Copper Market: The Viability and Impacts of Alternate Market Management Arrangements

Abstract In this study, economic analysis and simulations on an econometric model of the international copper economy are employed to assess the viability and probable impacts of the two current front-running schemes for copper market stabilization, namely Pure Buffer Stock (PBS) Schemes and Hybrid Buffer Stock/Supply Management (HBS) Schemes. PBS schemes were found (i) to generate net revenue reductions for all producers and net exporting countries; (ii) to be only modestly stabilizing; (iii) to be of questionable viability owing to probable self-defeating impacts on commercial stock-holding and on decision-making regarding production volumes. HBS schemes involving export or production cutbacks have (i) mixed impacts on volumes of producers' revenues dependent upon the strength of supply restrictions vis-à-vis buffer stock action; (ii) especially favourable revenue-raising effects for secondary producers' and (in the case of export cut-backs) non-exporting primary producers as well; (iii) weak stabilizing impacts; (iv) serious workability problems, combining the difficulties of PBS and pure supply restriction schemes; and (v) a variety of detrimental side-effects. The findings of this study are not encouraging to those hoping to improve the functioning of the international copper market through a market management arrangement.

Copper econometric models

There are three copper econometric models in the open literature: Arthur D. Little (ADL) model, Fisher et al. (FCB) model, and Charles River Associates (CRA) model. This paper explains these models, re-estimates their coefficients by using identical data (for the period from 1957–1973), synthesizes a copper econometric model by tailoring various elements of the models into a composite model, and compares several of the output of this composite model with actual past data. The three models vary in the extent of their coverage. In general, the ADL model concentrates on U.S. refined copper market, the FCB model covers the international copper primary market more thoroughly than the U.S. market, and the CRA model is evenly distributed between the international and U.S. primary markets. All three models use almost the same exogenous variables for the input information. The three models examined show almost identical strength and weaknes in simulating copper markets. Based on historical copper market relationships, the three models apparently are not able to predict future markets efficiently. For example, none of the three models could have predicted dramatical copper price creases in 1973. The Penn Composite Model, properly combined to contain only the strength of the ADL and FCB models, has improved model predictability, but it is still far from satisfactory. The model can be greatly polished if it takes into account copper companies' production schemes and government's intentions simultaneously.

A Quarterly Domestic Copper Industry Model

T HE copper industry appears to believe firmly that short-term copper market forecasting is infeasible.1 Despite this pessimism, considerable effort has been devoted to precisely that task. The better known and more complete models include those of Fisher, Cootner, and Baily (1972) (henceforth FCB) and Charles River Associates (1970) (henceforth CRA). Relative to these studies, the present research estimates a quarterly instead of annual model, extends specification of the domestic price equations,2 and examines prediction of employment. Results of particular interest include substantiation of the dual roles of capacity and output in determining employment, the use of the scrap price as a signal for change in the refinery price, specification of intermetal complementarity in ferrous and nonferrous scrap collection, and inclusion of a price expectations variable in consumption. Refinery price, scrap price, total refined supplies, refined consumption and employment are presented and discussed in detail. Stock variables which are used in several equations cannot quite be derived tautologically from lagged inventories, consumption, and supplies. Incomplete stock data and lack of consistency in defining the points in the continuum of copper production that the refined copper becomes produced, becomes part of stocks, and is consumed, prevent the basic stock change identity from holding. However, some simple refinements on a near tautological equation permit accurate estimation of inventories. Some of the equations presented use subdivisions of total refined supplies, e.g., primary refined production. Some work was done on estimating the subcomponents. Although the outcome of this effort is not presented in detail, some of the results derived from this phase of the research are discussed in the section on supplies.

Stabilization of the international copper market: A simulation study

The authors simulate an econometric model of the world copper industry together with a financial model of a stabilization agency to evaluate the financial profitability of stabilization under alternative regimes. In particular the effects of varying the stabilization bandwidth and the initial metal endowment of the agency are examined. A major finding is that a stockpile facility considerably in excess of that proposed by UNCTAD would be required to give adequate stabilization.

An Econometric Model of the World Copper Industry

This paper discusses a complete model of the world copper economy. Supply equations for primary copper are estimated for four principal producing countries and the rest of the world; demand equations are estimated for the United States, Europe, Japan, and the Rest-of-World. Scrap supply equations are estimated for the U.S. and non-U.S. sectors as are price adjustment equations. The model is closed with a net input equation for the United States and various identities. The two separate copper markets (U.S. and non-U.S.) are converted by inputs, the generally free London Metal Exchange and scrap markets, and the price-setting behavior of U.S. producers. The copper market is found to be characterized by low short-run but very high long-run price elasticities, making for considerable sensitivity to exogenous forces. The model, fitted to 1948-1969 data, is used for forecasting and simulation experiments. Generally, short-run forecasts are good and longer-run forecasts are not very satisfactory. Perhaps the most interesting finding of the simulation is the prediction that Chilean output would be very sluggish even in the absence of nationalization and that Chilean revenues would be substantially increased were the Chilean government to increase domestic mine production and to allow world prices to adjust accordingly.

The crisis of the world copper market

The crisis of the world copper market

The International Copper Cartel

The International Copper Cartel, established in 1935, terminated prematurely in 1939 upon the outbreak of the Second World War. It represented an attempt by the world's largest copper producers to regulate the world copper market outside the United States chiefly by adjusting the mine production of copper ore to consumption at prices agreeable to the cartel members. The structure and operation of this international collective marketing control offers a wealth of source material for the statesman, political scientist and economist. The history of the copper trade can be traced back to ancient man's search for better implements and materials. Even then the copper trade assumed an international character as it followed the development of civilization in Europe, India, China. Then for a time it was superseded by the discovery and use of other metals. In the Middle Ages, interest in copper revived again. In 1548, an international copper cartel was formed which did not differ much in its structural aspects from modern international marketing organizations. Scarcity of supply, poor transportation facilities, and, last but not least, the protective measures of the almost insolvent Holy Roman Emperor gave this monopoly its peculiar power. This cartel controlled the bulk of production and trade in this commodity all over Europe. The marketing controls were so stringent as to stir up an anti-monopolistic movement which was quelled only by the efforts of the Emperor himself.' Much has been written about the historical and technological development of the so-called red metal. We all know that the discovery of the rich ore deposits in the United States made this country by the end of the nineteenth century the largest producer of both raw and refined copper, and that the age of electricity was ushered in with the improvements in smelting and producing of copper.2 It seems advisable to mention briefly some of the outstanding features of the international controls operating on the copper market between the two world wars. It was in 1918 that possibly the most successful cartel (at least from the producers' point of view) was formed to liquidate the tremendous stocks of copper piled up as a result of the war and to regulate new production and exports.

The Recent History of the Copper Trade

DURING I923 the average price of refined copper in New York was lower than it had been in I9I3, whilst general prices, as shown by the index number of the Bureau of Labour, were 54 per cent. higher. This fact seems to require the more explanation when one considers the great expansion in the use of electricity which has taken place since I9I3, and the importance of copper as a raw material in the electric industry. This explanation may be found in the history of the metal in the post-war years, and in the following pages I have given an account of the course of the copper market since I9I8, and have then attempted to set forth the factors which bear upon the future of the industry. A few introductoryparagraphsprecedethis account, dealing with the sources of supply and the nature of the market considered. The following table shows the copper production of various countries since I9I3. It exemplifies the predominant part played by North and South America in this production, for these countries produced in I9I3, 73 per cent., and in I922, 78 per cent. of the world's total output. The quantities produced by other countries are small in amount and their variations have been of little importance during the period under review, the expansion in production since I9I3 being due almost entirely to variations in the American supply. The only source of supply outside America which seems likely to have an appreciable effect on the market in the near future, is the Katanga region in the Belgian Congo, where resources are being rapidly developed and it is hoped eventually to produce I78,000 tons of copper annually. But at the moment the output of the area is comparatively small, so that any study of the past four years may confine itself, in considering the conditions of supply, to the production of North and South America. Consequently, in the pages which follow, costs and methods of production refer to these countries only, and it is mainly the New York market which is considered. In the American Continent itself it is necessary to note the growing importance of Chile in the production of copper. The resources of this country (which in I9I3 produced 4I,000 tons of ore) have been rapidly developed during recent years, the development having been largely facilitated by low costs of production.,