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.     

International coal prices

The place coal will occupy among the world's energy supplies depends on many factors, including its price trends. This paper reviews recent price trends and supports the thesis that future coal prices are independent of oil prices, and that they will fluctuate between two limits which are based on production and transport costs in the USA and Australia.     

ON TAXATION AND FIRMS CHOICE OF WASTE WATER TREATMENT TECHNOLOGY1

ABSTRACT: The interaction between the level of taxation and the firms accruing choice of treatment technology is discussed. It is shown that there is a risk of overtaxation, that is, simply increasing taxation may fail to improve environmental quality but only increase production costs and thus consumer prices.     

The impact of monetary liquidity on Chinese aluminum prices

By expanding Frankel and Rose's (2009) theoretical model to consider the interaction of commodity prices with both money liquidity and expectation formation, this paper empirically studies the long-run relationship and short-term dynamics between aluminum prices and money liquidity via Vector autoregressive (VAR) and Impulse Response Function methodologies. Our results show that: (1) a cointegration relationship between money liquidity and Chinese aluminum prices exists, and monetary liquidity positively significantly influences the price over long periods; (2) a structural change has been found during the 2008 Financial Crisis and the change of Chinese monetary policies; and (3) the negative impact of production capacity mechanism on aluminum prices coexists with the positive impact of financial asset returns mechanism, to allow for varied market expectations on aluminum prices within and outside China.     

Petrochemicals from oil,natural gas,coal and biomass: Production costs in 2030–2050

Methane, coal and biomass are being considered as alternatives to crude oil for the production of basic petrochemicals, such as light olefins. This paper is a study on the production costs of 24 process routes utilizing these primary energy sources. A wide range of projected energy prices in 2030–2050 found in the open literature is used. The basis for comparison is the production cost per t of high value chemicals (HVCs or light olefin-value equivalent). A Monte Carlo method was used to estimate the ranking of production costs of all 24 routes with 10,000 trials of varying energy prices and CO₂ emissions costs (assumed to be within $0–100/t CO₂; the total CO₂ emissions, or cradle-to-grave CO₂ emissions, were considered). High energy prices in the first three quarter of 2008 were tested separately. The main findings are:

• •Production costs: while the production costs of crude oil- and natural gas-based routes are within $500–900/t HVCs, those of coal- and biomass-based routes are mostly within $400–800/t HVCs. Production costs of coal- and biomass-based routes are in general quite similar while in some cases the difference is significant. Among the top seven most expensive routes, six are oil- and gas-based routes. Among the top seven least expensive routes, six are coal and biomass routes.
• •CO₂ emissions costs: the effect of CO₂ emissions costs was found to be strong on the coal-based routes and also quite significant on the biomass-based routes. However, the effect on oil- and gas-based routes is found to be small or relatively moderate.
• •Energy prices in 2008: most of the coal-based routes and biomass-based routes (particularly sugar cane) still have much lower production costs than the oil- and gas-based routes (even if international freight costs are included).

To ensure the reduction of CO₂ emissions in the long-term, we suggest that policies for the petrochemicals industry focus on stimulating the use of biomass as well as carbon capture and storage features for coal-based routes.     

Canadian manufacturing: The impacts of natural resource price increases on input demands and costs

The separate effects of 50% increases in the prices of energy, renewable and nonrenewable natural resource inputs on factor demands and production costs are simulated for Canadian total manufacturing and six two-digit industries. Both renewable and nonrenewable natural resource price increases have a substantially greater effect upon the demands for other factors and upon production costs than a parallel energy price increase. These results are important from a policy perspective and justify the further disaggregation of inputs in this and in other models of input demand.     

PROJECTED EFFECTS OF ENERGY POLICIES ON AGRICULTURAL WATER USE AND IRRIGATION1

ABSTRACT: A national and interregional programming model was used in projecting the impacts of alternative energy policies and prices on agricultural production, land use, and irrigation. The alternatives analyzed include (a) natural gas deregulation, (b) natural gas curtailment, (c) doubled energy prices, and (d) tripled energy prices. These alternatives are compared with a base alternative where prices and conditions are at normal levels. Restraints in the model control availability of water, land, nitrogen fertilizers, and energy. Water production functions were used to adjust water use to conform with projected energy prices and policies. Natural gas curtailment would have the largest effect on nitrogen use on irrigated land. Values or shadow prices for lands that remains in irrigation would increase under all of the alternatives because of reduced supply. Increased energy prices generally would increase use of surface water for irrigation and reduce use of ground water due to higher pumping costs. Reductions of 50 percent or more in ground water use would occur in the South Central and Western regions of the United States. Water supply prices increase under all of the alternatives; with the amount varying by regions and the policy or price situation.     

Sustainability under siege: Transport costs and corruption on West Africa's trade corridors

We use recent data on transport costs in West Africa, including the added burden of bribes and enforced delays, to show how such costs represent a deterrent to investment in — and therefore the sustainability of — agricultural assets. We focus on data for two important tree crops in West Africa, cashew and shea. We also have data for the transport of onions between Niger and the urban market in Accra, Ghana. Our data allow us to predict plausible increases in farm‐gate prices from a reduction in transport costs and bribes. A 10% reduction in the total transport costs (actual costs plus corruption costs) of onions from Niger could result in a 12‐13% price increase to onion farmers. Similar elasticities are 2% for cashew in Ghana and 7% for shea in Mali. These feasible price increases would encourage farmers to improve onion production, and to protect and improve production from cashew and shea trees, thereby enhancing the sustainability of agro‐forestry in West Africa. We call these price increases the “sustainability dividend”.     

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.     

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.     

AN ANALYSIS OF RISING IRRIGATION COSTS IN THE GREAT PLAINS1

ABSTRACT: Irrigation costs are rising rapidly on the 32 million acres irrigated with ground water. Ground water levels are declining under about 15 million of those acres adding to increased costs. However, from 1975 to 1982, 75 to 80 percent of increased ground water irrigation costs were due to higher nominal energy prices and interest rates. In real dollars, adjusted for inflation, these costs have risen faster than other irrigation costs and the real rise in commodity prices has been very small. A continuation of rapidly rising costs and slowly rising prices will shorten the economic life of those aquifers experiencing declining water levels. That same condition of prices and costs place all ground water irrigators in a disadvantaged position compared to nonirrigators and could cause a decline in ground water irrigation.     

Mining economics and the environment

A mining operation can affect the environment adversely and create costs to others that are external to the mining firm, if no constraints are imposed. To deal with this problem of externalities, various regulatory steps can be taken, eg effluent taxation, subsidies, regulation of emissions by command, and use of emission permits that are tradeable. Bargaining between the polluter and the damaged party over the level of production and compensation remains a more theoretical option. Regardless of what regulatory approach is adopted to transform external costs into internal costs, the resulting higher costs will have an impact on the decisions of a mining firm. Information processes, traditionally focused on finding deposits, have now been broadened to include an environmental dimension. Operating practices can be modified to reflect the need for stable long-term solutions of waste disposal problems. On the industry level, environmental regulation may lead to sterilization of resources, to higher prices for some commodities and to distortions of competitiveness among commodity producing countries.     

FARM-LEVEL MANAGEMENT OF DEEP PERCOLATION EMISSIONS IN IRRIGATED AGRICULTURE1

ABSTRACT: Source control costs for deep percolation emissions from irrigated agriculture are analyzed using a farm-level model. Crop area, irrigation system and applied water are chosen to maximize the net benefits of agricultural production while accounting for the environmental damages and disposal costs of those emissions. Deep percolation is progressively reduced as environmental and disposal costs are increased. This occurs primarily through the adoption of more efficient irrigation technology and reductions in applied water for a given technology Higher surface water prices, such as through irrigation reform and constrained surface supplies, are additionally considered in light of the drainage problem, as are the effects, both short- and long-term, on ground water use.     

Mine size optimization using marginal analysis

In this study, a model to estimate the optimum mine size is developed. The model is developed on the basis of marginal analysis. The model solves for the production rate at which the present value of marginal costs equals the present value of marginal revenues—the rate that microeconomic theory shows will maximize the net present value of production from the mine.In addition, the article discusses the effects on the optimum production rate of: the physical characteristics of the deposit, economic factors, and financial factors. It has been found that, not surprisingly, as the reserve tonnage increases, the optimum mine size increases. Also, the optimum production rate increases as the ore grade increases. A direct relationship has been found between the mineral price and the optimum production rate. The optimum mine size is found to be inversely related to the expected growth rate of mineral price, while it is directly related to the expected growth rate of mining costs. A concave relationship has been found between the cost of capital and the optimum mine size.     

Grading of Parameters for Urban Tree Inventories by City Officials, Arborists, and Academics Using the Delphi Method

Tree inventories are expensive to conduct and update, so every inventory carried out must be maximized. However, increasing the number of constituent parameters increases the cost of performing and updating the inventory, illustrating the need for careful parameter selection. This article reports the results of a systematic expert rating of tree inventories aiming to quantify the relative importance of each parameter. Using the Delphi method, panels comprising city officials, arborists, and academics rated a total of 148 parameters. The total mean score, the top ranking parameters, which can serve as a guide for decision-making at practical level and for standardization of tree inventories, were: Scientific name of the tree species and genera, Vitality, Coordinates, Hazard class, and Identification number. The study also examined whether the different responsibilities and usage of urban tree databases among organizations and people engaged in urban tree inventories affected their prioritization. The results revealed noticeable dissimilarities in the ranking of parameters between the panels, underlining the need for collaboration between the research community and those commissioning, administrating, and conducting inventories. Only by applying such a transdisciplinary approach to parameter selection can urban tree inventories be strengthened and made more relevant.     

On the price-volume relationship in crude oil futures markets

This paper applies a quantile regression model to examine the relationship between the contract prices and trading volumes of light sweet crude oil contracts on the New York Mercantile Exchange (NYMEX) and Brent crude oil contracts on the Intercontinental Exchange (ICE). The results show a tandem rise in prices and volumes for light sweet crude oil contracts but a deviation between prices and volumes for Brent crude oil contracts. These two crude oil contracts exhibit significantly different relationships between prices and volumes when prices fluctuate. This finding can help analysts and investors in their investment decisions.     

Impact of different public E&P policies on natural gas reserves and production in Pakistan

Low wellhead domestic gas prices over the past few years have led to the beginning of a shortage in natural gas reserves and production in Pakistan. Gas demand steadily rises in all sectors for being an economical fuel as compare to substitutes. In the view of foregoing consumption trend, the demand for gas is expected to grow with a higher pace during the 2010s. On the contrary, indigenous gas reserves are running out and cannot keep up with the demand. This paper examines the extent of upstream activities in different petroleum policy regimes. The wellhead price for indigenous gas is compared with the prices of alternatives (for example, gas import prices). In order to put the problem in perspective, the relationship between wellhead gas price and cumulative gas reserves in Pakistan are analyzed and we find that the looming gas shortage can be ameliorated in the short-run and eliminated in the long-run through incentivized wellhead price. To put it briefly, the idea is mooted to first take advantage of huge domestic reserves to ensure competitive consumer prices for gas. The findings are applicable to several other economies with under-developed natural resources.     

The economics of uranium demand

The major characteristics of the demand for uranium are identified, and a number of factors which determine the actual level of uranium requirements of the nuclear power industry are discussed. Since the role of inventories is central to the process of short-term price formation, by comparing projections of uranium production and apparent consumption, the relative level of total inventories is calculated and an assessment is made of its likely impact on the uranium market during the 1980s.     

Biological inventories and computer data bases: Their role in environmental assessments

An important goal of biological inventories is to provide information for environmental assessments of development projects and biodiversity conservation. Likewise, computer data bases have been proposed for efficient compilation and management of biological information. However, the attributes of biological inventories and computer data bases have not been examined with respect to environmental assessments. This article presents a case study in Mexico to analyze the current limitations of biological inventories for successful environmental assessments and biodiversity conservation in developing countries. Results demonstrate that, considering the objectives of environmental assessments and information constraints, computerized biological inventories should be assembled with a minimum of record fields: taxonomic data and georeferenced collection localities. Furthermore, it is proposed that environmental assessments should become a feedback to biological inventories and an important financial support to universities and research institutions in developing countries.     

Long-term iron ore price modeling: Marginal costs vs. incentive price

The paper studies and applies the approaches to forecast long-term (LT) real prices of iron ore. This price is crucial for valuation of investments in Greenfield iron ore projects on the horizon of more than 5 years. The forecast is obtained by three different approaches which are usually used by investment bank analysts: marginal costs approach and 2 approaches based on calculation of incentive price. The paper concludes that there has been a structural shift on the iron ore market and LT iron ore prices will be higher by 20–30% than the average of industry forecasters suggest. This is related to the 2 key factors which were taken into account in this study—depletion of existing iron ore deposits and targeted return on investments for new projects. In addition, escalated industry costs inflation is claimed to be the factor which will bolster nominal iron ore prices at high levels in the long-term. Using a Monte-Carlo simulation approach, confidence interval for future iron ore price was estimated.