Price and volatility transmission between primary and scrap metal markets

The relationship between primary and scrap prices has been hypothesized for the most part as unidirectional, characterized by spillovers from primary to scrap prices. The purpose of this study is to evaluate empirically the dynamic interactions between primary and scrap metal prices through multivariate time series methods. In addition, the study expands the investigation at the level of volatility transmission, which has not been previously examined. The metal prices utilized are for copper, lead, and zinc for the period 1984–2001. The paper demonstrates differing long run and short run links. Scrap prices do not improve the long run interpretation of primary prices, but information flows from the scrap to the primary markets exist in the short run. Additionally, the copper and lead markets exhibit bidirectional information flows in terms of volatility transmission. The analysis provides valuable insight into the interactions of the primary and scrap metal sectors which can be used to improve forecasting and planning.     

Metal prices and the business cycle

Metal price fluctuations have recently been of interest not only because of their cyclical volatility but also of their interaction with business cycles. A related issue is whether metal prices move together sufficiently to collectively reflect macroeconomic influences. Correlation or the tendency for prices to move together has been termed “comovement”, where the commonality in prices reflects the tendency of commodity markets to respond to common business cycle and trend factors. Metal prices are known to respond to macroeconomic influences and the latter might well explain the common factor which causes them to move together. Our goal is to provide an estimate of the common factor in metal prices and to relate this factor to important macroeconomic influences. The prices we study are for aluminum, copper, tin, lead and zinc; the macroeconomic variables include industrial production, consumer prices, interest rates, stock prices, and exchange rates. Our results confirm that the common factor in metal prices can be related to such macroeconomic influences.     

Long memory and chaotic models of prices on the London Metal Exchange

Many financial time series exhibit irregular behaviour. Economic theory suggests that this irregular behaviour might be due to the existence of nonlinear dependence in the markets. Thus, economic time series are governed by nonlinear dynamics.The purpose of this paper is to investigate price behaviour in the London Metal Exchange market. Thus, this study will test the two most attractive nonlinear models—long memory and chaos—on six metal commodities to ascertain which model is consistent with the observed metal price nonlinear dynamics.Application of long memory and chaos analysis provides new approaches for assessing the behaviour of metal prices. We identified, in tin, a case of chaos. Our empirical results in the case of aluminium support the long memory hypothesis. A short memory model explains the underlying processes of the nickel and lead returns series, while zinc returns reflect an anti-persistent process. To our knowledge, this is one of the first attempts to apply long memory and chaos analysis in the evaluation of the behaviour of metal prices.     

A study of the relationship between regional ferrous scrap prices in the USA, 1958–2004

This paper discusses univariate and mulitvariate methods used to deal with seasonal data with special emphasis on periodic models. These models are examined within the context of three regional U.S. ferrous scrap prices. All these variables can be described as being periodically integrated. The periodic models identified will be of use in assessing the future profitability of electric arc steel making. These scrap prices are shown to be periodically cointegrated in three of the four quarters with rapid speeds of adjustment to these long run equilibria. The cointegration relations have implications for the location of minimills.     

Theory of storage,inventory and volatility in the LME base metals

The theory of storage, as related to commodities, makes two predictions involving the quantity of the commodity held in inventory. When inventory is low (i.e. a situation of scarcity), spot prices will exceed futures prices, and spot price volatility will exceed futures price volatility. Conversely, during periods of no scarcity, both spot prices and spot price volatility will remain relatively subdued. We test these predictions for the six base metals traded on the London Metal Exchange (aluminium, copper, lead, nickel, tin and zinc), and find strong validation for the theory. Including Chinese inventories reported by the Shanghai Futures Exchange strengthens the relationship further. We also introduce the concepts of excess volatility, inventory-implied spot price and inventory-implied spot volatility and illustrate some applications.     

Copper recycling and scrap availability

According to existing estimates, available old copper scrap has more than tripled over the past 40 years. Secondary production (that is, copper produced from recycling old scrap), however, has only doubled. Indeed, over the past 10 years, while copper consumption and primary production have continued to expand briskly, while available old scrap has increased by over 35%, secondary production has actually stagnated.For a world concerned with sustainable development and the quality of the earth's environment, this performance is disappointing and in need of explanation. Other things being equal, one would expect the amount of recycling to increase with the availability of scrap, as many econometric models of the world copper market developed over the past several decades explicitly assume.The key to understanding sluggish growth in secondary production, this paper argues, is distinguishing carefully between (1) the flow of old scrap that arrives each year from products reaching the end of their useful lives during the year and (2) the available stock of old scrap that was not recycled during earlier years presumably because it was too costly to do so. Using an econometric model, the paper shows that old scrap stocks, which have contributed most of the increase in available old copper scrap over the years, have a very modest impact on secondary production. Old scrap flows have a much greater effect, but they account for only about 4% of the available old scrap for any given year.     

我国废有色金属拆解利用再生产业发展现状

阐述了我国废金属拆解利用产业发展现状及存在的主要问题,提出了应对废金属拆解再生产业加强政府引导、加强回收体系建设、研发推广先进技术和改善税收政策等对策建议。     

Scrap tires to crumb rubber: feasibility analysis for processing facilities

Crumb rubber can be produced from scrap tires in a wide range of particle sizes and quality levels. Ideally, the revenue stream includes tipping fees paid to receive the raw materials; sales of variously-sized crumb products to different end-user markets; and potential sales of scrap metal and fiber contained within the tires. General demand has been increasing, and submarkets for crumb products are growing in size and variety. However, the optimistic expectations of potential investors and government agencies contrast sharply with the experiences of many current and former producers. Production planning and operation is complex, real-dollar crumb prices have fallen, and many producers recount difficulties finding stable markets and competing against newer, state-subsidized competitors. This paper examines the engineering economics of crumb rubber facilities. Following a literature review and interviews with producers, a financial model of a nominal processing operation was created to aid the analysis of different market, crumb size, and production scenarios. The profitability of a crumb facility appears to be particularly sensitive to crumb rubber prices, operating costs, and raw material availability. Better analysis of market and production impacts on financial viability for proposed processing facilities would aid overall market efficiency.     

Historical evolution of anthropogenic aluminum stocks and flows in Italy

Dynamic stocks and flows analysis was applied to the anthropogenic aluminum cycle in Italy in order to detect and quantify metal flows and in-use stocks over the years 1947–2009. The model utilized a top-down approach, including data for production, consumption, loss, and trade flows of aluminum. Seven end-use markets were considered, namely buildings and construction, transportation, consumer durables, machinery and equipment, electrical engineering, containers and packaging, and miscellaneous appliance types. The results of this dynamic stocks and flows analysis model quantified the contemporary anthropogenic reservoirs (or in-use stocks) of aluminum at about 320 kg per capita, mainly embedded within the transportation and building and construction sectors. Cumulative in-use stock represents approximately 11 years of supply at current usage rates (about 20 Mt versus 1.7 Mt/year), implying significant potential for recycling in the future as this stock comes out of use. Flow analysis revealed that Italy imports mainly unwrought aluminum and exports final products, while the main material losses occur during alumina refining and collection of old scrap: specifically, containers and packaging have the highest old scrap generation rate, but for the lowest recovery rate (50%). Increasing support to collection of scrap and initiatives oriented to aluminum recovery specifically would allow Italy to increase its reliance on domestic material, and may also allow a decline of the country import-dependence on primary sources. The dynamic stocks and flows model created here provides a quantitative historical record of the aluminum required by Italian society during important periods of development and provides guidance for future decision-making around the use of domestic secondary resources.     

Market imperfections in recycling markets: conceptual issues and empirical study of price volatility in plastics

The effectiveness of recycling depends upon efficient functioning of secondary material markets. This paper focus on the role that price volatility can play in slowing investment and market development. However, a statistical analysis of the relative volatility of secondary and primary material prices does not confirm the widely-held belief that relative price volatility is higher in secondary than in primary materials, at least at national levels.An econometric estimation of the determinants of plastic recovery volumes in Seattle contributes to the literature in four ways: the use of monthly (as opposed to annual) data; the use of local (as opposed to national) data; the use of an explanatory variable to reflect price volatility; and, the focus on plastics, which have not been examined previously. Some tentative conclusions can be made: the results generally support the principal hypothesis that price volatility has a negative effect on recovery of secondary materials; in addition, and consistent with previous studies, price elasticities are low and insignificant; and finally, policy factors are clearly important. The concluding section treats the economic and policy implications of market inefficiency in secondary material markets.     

Environmental consequences of recycling aluminum old scrap in a global market

Nowadays, aluminum scrap is traded globally. This has increased the need to analyze the flows of aluminum scrap, as well as to determine the environmental consequences from aluminum recycling. The objective of this work is to determine the greenhouse gases (GHG) emissions of the old scrap collected and sorted for recycling, considering the market interactions. The study focused on Spain as a representative country for Europe. We integrate material flow analysis (MFA) with consequential life cycle assessment (CLCA) in order to determine the most likely destination for the old scrap and the most likely corresponding process affected. Based on this analysis, it is possible to project some scenarios and to quantify the GHG emissions (generated and avoided) associated with old scrap recycling within a global market. From the MFA results, we projected that the Spanish demand for aluminum products will be met mainly with an increase in primary aluminum imports, and the excess of old scrap not used in Spain will be exported in future years, mainly to Asia. Depending on the scenario and on the marginal source of primary aluminum considered, the GHG emission estimates varied between −18,140 kg of CO₂ eq. t⁻¹ and −8427 of CO₂ eq. t⁻¹ of old scrap collected. More GHG emissions are avoided with an increase in export flows, but the export of old scrap should be considered as the loss of a key resource, and in the long term, it will also affect the semifinished products industry. Mapping the flows of raw materials and waste, as well as quantifying the GHG impacts derived from recycling, has become an essential prerequisite to consistent development from a linear toward a circular economy (CE).     

Metals recycling in the United States

Twenty-two metals for which secondary recovery is important, in terms of quantity and/or value, were compared and ranked for rate and efficiency of recycling, and availability of recycled metal. In general, their recycling rates trended upward over the period 1970–1993. Iron, aluminum, copper, gold, platinum, and lead accounted for most of the value of all secondary metal produced, while iron and steel dominated in terms of quantity produced and exported. The factors most influential on recycling rates are profitability, public support, organization of infrastructure, sortability, legislative support, and scrap purity. The share of supply accounted for by secondary metals is expected to surpass that of primary metals sometime in the next decade.     

Modelling price fluctuations of ferrous scrap

This paper presents a model that analyses the interrelationships between markets of light non-flat steel products (such as concrete reinforcing bars) and iron and steel scrap, both of which are characterized by wide price fluctuations. The model, which was developed as a linear complementarity programming problem, seems to be robust in analysing unstable and simulataneous price movements of those markets. The model may be applied to other metal and scrap markets without substantial changes.     

Long-term trends in the Real real prices of primary commodities: Inflation bias and the Prebisch–Singer hypothesis

In his recent article on measuring the long-term trends in the real prices of primary commodities, Cuddington (2010) extends in several important respects our earlier efforts (Svedberg and Tilton, 2006) to correct real commodity price trends for biases in the Consumer Price Index and other deflators. First, he argues for a log-linear relationship between prices and time. Second, he proposes a simple and quick method for obtaining corrected price trends from the published but uncorrected estimates. Finally, he illustrates, for the case of copper and presumably for many other commodities as well, the difficulties of obtaining real price trends significantly different from zero when the log values of the price data contain a unit root, requiring the use of difference stationary models.We welcome these insights, which should improve and make easier efforts to estimate correctly real commodity price trends over the long run. We would stress, however, that it is still important to correct for the biases in inflation indices, notwithstanding the failure of difference stationary models to obtain long-run real price trends (both corrected and uncorrected) significantly different from zero.     

Economic and policy instrument analyses in support of the scrap tire recycling program in Taiwan

Understanding the cost-effectiveness and the role of economic and policy instruments, such as the combined product tax-recycling subsidy scheme or a tradable permit, for scrap tire recycling has been of crucial importance in a market-oriented environmental management system. Promoting product (tire) stewardship on one hand and improving incentive-based recycling policy on the other hand requires a comprehensive analysis of the interfaces and interactions in the nexus of economic impacts, environmental management, environmental valuation, and cost-benefit analysis. This paper presents an assessment of the interfaces and interactions between the implementation of policy instruments and its associated economic evaluation for sustaining a scrap tire recycling program in Taiwan during the era of the strong economic growth of the late 1990s. It begins with an introduction of the management of the co-evolution between technology metrics of scrap tire recycling and organizational changes for meeting the managerial goals island-wide during the 1990s. The database collected and used for such analysis covers 17 major tire recycling firms and 10 major tire manufacturers at that time. With estimates of scrap tire generation and possible scale of subsidy with respect to differing tire recycling technologies applied, economic analysis eventually leads to identify the associated levels of product tax with respect to various sizes of new tires. It particularly demonstrates a broad perspective of how an integrated econometric and engineering economic analysis can be conducted to assist in implementing policy instruments for scrap tire management. Research findings indicate that different subsidy settings for collection, processing, and end use of scrap tires should be configured to ameliorate the overall managerial effectiveness. Removing the existing boundaries between designated service districts could strengthen the competitiveness of scrap tires recycling industry, helping to reduce the required levels of product tax and subsidy. With such initial breakthroughs at hand to handle the complexity of scrap tire recycling technologies, there remains unique management and policy avenues left to explore if a multi-dimensional solution is to be successful in the long run.     

Forecasting precious metal price movements using trader positions

In the early 2000s, the precious metal markets entered into a new phase where a steady rise of prices had been observed until the October 2008 crash. Given the size and importance of precious metal market, as well as the hedging capacity of precious metals due to their low correlation with equity markets (Draper et al., 2006), the question we want to arise is whether trader positions predict the direction of gold, platinum, and silver spot price movements. The forecasting content of the Commodity Futures Trading Commission’s Commitment of Traders report for platinum, silver and gold prices using trader positions is investigated in a VAR framework. Granger causality tests are conducted to determine whether a relation between trader positions and market prices exists. An examination of the extreme trader positions on price movements is also conducted. The results indicate that market return is a significant parameter in explaining trader’s positions for all trader types in each of the precious metal markets under consideration after the beginning of 2000s where we detect a structural break for each of the market under study. Commercial traders are found to be negative feedback traders, that is, they sell when the prices increase in the market. On the other hand, in line with the previous literature, a positive correlation between returns and positions held by non-commercial and non-reporting traders is found. However, trader’s net positions do not lead market returns in general. There is some evidence on the forecasting ability of extreme trader positions on market returns.     

Strategic metal markets : Prospects for producer cartels

The OECD area is a major consumer and importer of strategic metals. Assurance of a steady supply of these critical materials at reasonably stable prices has for a long time been an important policy issue in the industrialized market economies. The present study addresses one aspect of supply security. The purpose is to explore the prospects for and strength of price-raising cartel action in selected strategic metal markets, mounted by producers outside the OECD countries.     

VALUE OF WATER IN IRRIGATED CROP PRODUCTION USING DERIVED DEMAND FUNCTIONS: A CASE STUDY OF SOUTH SASKATCHEWAN RIVER IRRIGATION DISTRICT1

ABSTRACT: Water abundance has led most North American societies to use water freely without priorizing its use. As water scarcity becomes reality in the southern part of Saskatchewan, planners and managers of water require information about the value of water in irrigation, as well as in alternative uses. In this study, the value of water to the producer in irrigation is developed both for the short and long run. The basis of this imputation is a derived demand function for water using linear programming. Water demand was bound to be inelastic at lower prices, and highly elastic at higher prices. The short-run value of water varied between $0.44 and $127.82 (1986 dollars) per acre-foot for different levels of product prices. However, the long-run value was estimated between zero and $1.59 per acre-foot of water.     

Dynamic material flow analysis of steel resources in Korea

Material flow analysis (MFA) is an evaluation technique that systematically identifies the flows and stocks of materials within predefined spatial and temporal boundaries. In this paper, the steel resources in Korea are investigated using dynamic MFA. Iron ore and steel scrap are added as raw material components during the production processes of steel, which is then used in a variety of product groups such as construction products, transportation equipment, machinery/metal products, electrical/electronic devices, and other products through fabrication and manufacturing processes. When such product groups are discarded, they are either recycled or landfilled. With consideration for the lifetimes of various product groups in conjunction with steel resource flows in Korea, dynamic MFA is conducted on the flows of steel stock change and annual scrap generation. By 2020, these two flows are expected to increase by as much as 40% and 30%, respectively, compared to 2008, with transportation equipment, in particular, envisaged to experience high growth. At the current recycling rate, however, it will be hard to meet future scrap demand. According to the scenario analysis, 100% of this future scrap demand can be supplied domestically if the recycling rate is increased to over 70% for all product groups, except construction products and transportation equipment, which already have high recycling rates. By 2020, the reduction in scrap importation costs is projected to offer a financial gain of 2.3 billion dollars.     

CAN SCRAP SAVE US FROM DEPLETION?

Old scrap constitutes varied proportions of consumption of different metals. The authors construct a model in which the share of scrap in total supply is explained by three factors, the growth rate in overall demand for the metal; the share of metal contained in scrapped products actually recovered; and the durability of metal containing products. The model is used to study the impact on the share of scrap in total supply from changes in each of the factors. The strongest impact appears to follow from changes in the growth rate of overall demand. Inserting empirical data for copper into their model, the authors suggest, for instance, that in the long run old scrap could satisfy 100 per cent of copper demand, provided that this demand contracted by 1 per cent per year. La ferraille constitue des proportions variées d'utilisation de différents métaux. Les auteurs de cet article ont construit un modèle dans lequel la part de ferraille dans 'approvisionnement total est expliquée par le jeu de trois facteurs: le taux de croissance de la demande globale pour le métal, la part de métal contenue dans des débris de métaux effectivement récupérés et la durabilité des métaux renfermant des produits. Le modèle est utilisé pour étudier les incidences des changements dans chacun des facteurs sur la part de ferraille dans 'offre totale. L'incidence la plus importante semble provenir de modifications dans le taux de croissance de la demande globale. En introduisant des données empiriques pour le cuivre dans leur modèle, les auteurs suggèrent par exemple, qu' à longue échéance, la ferraille pourrait répondre à la demande totale en cuivre pourvu que cette demande se réduise d'un pour cent par année. El uso de chatarra representa una proporción variable del consumo de los diferentes metales. En este artículo los autores presentan un modelo en el que la proción de la chatarra en la oferta de un metal depende de tres factores: la tasa de crecimiento de la demanda global del metal, la proción del metal contenido en la chatarra recuperada, y la durabilidad o vida económica de los productos que contienen el metal en cuestión. El modelo se utiliza para estudiar el impacto sobre la proporción de chatarra en la oferta total causado por las variaciónes de cada uno de estos factores. El mayor impacto parece ocurrir debido al cambio en la tasa de crecimiento de la demands global. Al utilizar el modelo con datos para el cobre, los autores sugieren, por ejemplo, que en el largo plazo la chatarra de cobre podría satisfacer el cien por ciento de la demanda de este metal siempre que dicha demanda se contraigo en uno por ciento por año.