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.     

World phosphate supply

The Bureau of Mines investigated the resources, costs, capacities, market relationships, and short- and long-run supply of phosphate rock and phosphoric acid. The 206 mines and deposits evaluated in 30 market economy countries (MECs) contain an estimated 35.1 billion tonnes of recoverable phosphate rock (demonstrated resource level). US resources are sufficient to satisfy both the domestic market and an export market for phosphate products well beyond 2000. Resource depletion at current producers, however, means new property development (with higher costs) will be required if US production levels are to be maintained. Existing worldwide capacity can satisfy expected demand through the early 1990s. Expansion at existing mines or low demand growth could mean no new property development is required before the late 1990s. Worldwide, almost $8 billion could be required for the development of new phosphate rock properties between now and 2000, given 3% annual growth in demand. Though profit may not be the principal motivation for development of government-owned operations, most properties that could develop in the 1990s would require price increases of 20–50% to break even. To earn a 15% rate of return on investment, prices must rise to nearly double the $23–271 tonne US price level of 1988. Current US phosphate rock and phosphoric acid producers appear to be competitive (on a variable cost basis) with many other suppliers in major markets. New US properties will have higher variable costs than current producers; however, they are competitive with most projected new foreign development. The US phosphoric acid industry will most likely face increased competition as more of the foreign phosphate rock producers develop the capacity to process rock into phosphoric acid and other fertilizer products.     

Petroleum prospects and the need for international cooperation

A review of the world energy situation prior to the Persian Gulf War of 1990-91 shows that periods of oil price instability have distorted the decision-making process. During periods of high prices, investments were made in uneconomic energy sources and in periods of low prices few investments were made at all. To create a rational investment climate, international cooperation between consumers and producers of petroleum is essential. Such cooperation in the form of a forum could help to stabilize prices and assure that the economic decisions needed to meet future demand would be made in a secure framework.     

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.     

Producer homogeneity,heightened uncertainty and mineral market rigidity

Minerals/metals markets are characterized by lumpy investments which impart a bias towards rigidity. That rigidity increased in the 1970s owing to heightened global economic uncertainty. The unexpected slowdown in global metals demand was a fundamental cause of the heightened uncertainty, but adjustment to it was hampered by a simultaneous reduction in the homogeneity of producers. The two main causes of reduced producer homogeneity were: the emergence of unstable and sizable differences in producer competitiveness and the proliferation of producers. A reduction in minerals market rigidity requires two sets of conditions. First, restoration of greater stability in global economic growth, inflation, energy prices and exchange rates; and second, an increase in producer homogeneity through the encouragement of joint ventures. Increased producer homogeneity facilitates expansion where investment is lumpy and since this improves the efficiency of capital it may be socially justified provided it is not accompanied by excess profits.     

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.     

Mine capacity and mineral price

The loss of foreign mineral supplies may affect domestic supply and price. To investigate the assumption that prices, a simple mine investment model that relates mine capacity to deposit attributes is used. A test of the model to see how well it approximates industry investment practice illustrates its accuracy. The model suggests that price changes can substantially affect the optimal capacity of planned or existing mines as well as the mineral supply in the USA.     

Oil to 2000

Current surplus oil production capacity had its origins in the price increases of the 1970s. Those increases encouraged both energy conservation and the entry of new producers. Recent increases in oil demand reflect the belief among energy users that in real terms in the long term, prices will be stable. There is good reason to believe that this will be so, even at the current rate of increase it will be 15 years before demand matches current capacity. Given that situation it is difficult to see OPEC following any other pricing policy than the one currently in place. In the meantime market prices will further encourage vertical integration.     

Tin Availability in Market Economy Countries

The U.S. Department of Interior's Bureau of Mines determined costs associated with the production of tin from 18 market economy countries (MECs). The resource and relative economic positions of 146 tin deposits were evaluated. Demonstrated resources of recoverable tin metal are estimated to be 2.8 million metric tons. Over 70% of this material is recoverable from three south-east Asian countries - Malaysia, Thailand and Indonesia; all are members of the International Tin Agreement (ITA).
In the last five years, Brazil has become a major, low-cost tin producer. In light of their large resources Brazil has become a dominant MEC tin producer and one of the world's few tin producers that can prosper during a protracted period of low tin prices.     

The macroeconomic determinants of volatility in precious metals markets

This paper models the monthly price volatilities of four precious metals (gold, silver, platinum and palladium prices) and investigates the macroeconomic determinants (business cycle, monetary environment and financial market sentiment) of these volatilities. Gold volatility is shown to be explained by monetary variables, but this is not true for silver. Overall, there is limited evidence that the same macroeconomic factors jointly influence the volatility processes of the four precious metal price series, although there is evidence of volatility feedback between the precious metals. These results are consistent with the view that precious metals are too distinct to be considered a single asset class, or represented by a single index. This finding is of importance for portfolio managers and investors.     

An assessment of time series methods in metal price forecasting

The international price for metals is pivotal in the profitability equation for mining companies. If producer prices rise, assuming production levels and costs remain the same, profits are expected to increase. Accordingly, producers welcome any means by which price instability and unpredictability can be reduced. The paper analyses the ability of two user-friendly time series forecasting techniques to predict future lead and zinc prices. The conclusion is that price forecasting is difficult. It should, however, be acknowledged that whilst neither of the two models are definitive, they are useful for the mining company vis-à-vis its planning process. In particular, the results from the analysis in this paper suggest that ARIMA modelling provides marginally better forecast results than lagged forward price modelling. The methodologies employed in this paper have a broad based application to base metal forecasting by mining companies in general, that is, the applications are transferable.     

Would commodity market stabilization agreements redistribute economic resources to developing countries?: The case of copper

There has been strong pressure, particularly within UNCTAD, for international stabilization agreements for the major commodity markets, in order to stabilize prices and to redistribute resources towards the developing country producers. However, no empirical evidence on the feasibility or desirability of these proposals has appeared. As an illustration of the possibilities, this paper makes estimates of the stabilizing power and costs of buffer stock interventions in the world copper market. We find that price and revenue stabilization is technically possible; but that to generate income transfers to the developing countries is prohibitively expensive and creates a further problem of redistribution among developing country producers.     

Broadening the statistical search for metal price super cycles to steel and related metals

During the past five years, industry analysts have proclaimed that metal prices are in the early phase of a ‘super cycle,’ driven primarily by Chinese industrial expansion. Academic economists have generally been very skeptical about the presence of long cycles. A time-series econometric analysis by Cuddington and Jerrett [2008. Super cycles in real metals prices? IMF Staff Pap. 55(4), in press], however, has used band-pass filtering techniques to isolate super cycles in the prices of six metals traded on the London Metal Exchange (the ‘LME6’). This paper extends the search for super-cycle behavior to three additional metal products that are critical in the early phases of industrial development and urbanization: steel, pig iron, and molybdenum (a key ingredient in many steel alloys). There is strong evidence of super cycles in these three metals, although their timing differs to some extent from the super cycles found for the LME6.     

Restructuring of the aluminium industry

In the 1980s, the basic strategies of the major integrated aluminium companies have been to emphasize added investment in downstream activities at the expense of investment in smelting and raw material supply. The paper examines the rationale for such investment strategies, explores the advantages and disadvantages of downstream investment and presents projections of future demand and capacity in the industry. Overall, the industry appears to be in good shape until the mid-1990s when demand is likely to exceed currently projected capacity.     

Modelling investment and implementation of technological progress in metal industries. Theory and application to the German primary aluminium industry

Existing approaches to modelling investment and implementation of technological progress in metal industries concentrate, mostly, on the investment process for new plants. Modernisation of existing plants is not modelled with the same degree of care. It is, however, the case that the upgrading of existing plants plays a decisive role in the implementation of technological progress and capacity expansion in metal industries. This paper develops an approach to making investment decisions that considers the upgrading of existing plants, as well as the building of new plants. The capability of the model is illustrated by using the example of the German primary aluminium industry.     

Tri-generation investment analysis using Bayesian network: A case study

The increasing energy demand, increasing energy dependency, energy supply security, and environmental concerns have become a part of business policies since COP21 agreements in Paris, 2015. Combined cooling, heating, and power (CCHP or tri-generation) systems play an important role in paying the necessary attention to these policies. Tri-generation investment is a complex decision with hybrid use of energy resources. This article aims to reduce the complexity of this decision by the use of Bayesian belief networks in pre-investment stage of tri-generation investment project cycle. The proposed model gives an insight into decision analysis and helps the decision-makers either generate or purchase from it in order to meet the energy demand with different scenarios. The model is studied for a university case. The investment decision for a CCHP (tri-generation) system will be discussed as an alternative for purchasing the electricity and natural gas from the national grids.     

Moving the tin mountain

The recent history of the tin market has been characterized by competition between newly mined production and old surplus stocks against a background of declining demand. Because the control of surplus stocks has been unpredictable, prices have been volatile. Following the failure of the International Tin Council in 1985, mine production has fallen and demand has increased. Because mine production is quite price inelastic, continued growth in consumption may in due course result in a substantial rise in prices. Development and promotional work by tin producers could therefore bring them substantial benefits.     

水污染防治领域PPP项目投资回报机制设计

在国家相关政策的支持引导下,采用政府和社会资本合作(PPP)模式实施的水污染防治项目逐渐增多。合理的投资回报是社会资本参与PPP项目的关键所在。本文通过对水污染防治项目特点、不同付费方式及适用条件进行分析,对投资回报的内在机理进行了分析,提出水污染防治PPP项目投资回报机制设计原则,包括应符合市场配置特点,充分考虑项目风险影响,确保社会资本"盈利但不暴利"、以政府财政承受能力为底线、不以保底承诺、固定回报变相融资。在此基础上,从投资回报是社会资本方服务绩效的对价、合理设计保底需求和超额收益分享机制、合理设计服务价格及调整机制、合理拓宽可行性缺口补助投资回报方式等方面对投资回报机制要点进行了探讨,以期为同类项目的实施提供参考。     

Between Ideals and Reality: Development and Implementation of Fairness Standards in the Organic Food Sector

The organic sector is in an ongoing, but somewhat ambiguous, process of differentiation. Continuing growth has also entailed intensified competition and the emergence of conventional structures within the sector. Producers are under pressure to adapt their terms of production to these developments, bearing the risk that the original values and principles of organic farming may become irrelevant. To confront these tendencies and maintain their position on the market, organic producers and processors have launched a number of organic–fair initiatives. As some consumers attach importance to ethical aspects of consumption, these actors sense market opportunities in such quality differentiation. This article presents results of a study on current organic–fair criteria, as formulated by such initiatives. All of them define standards of distributive, procedural and informational fairness, with fair prices for producers and processors and long-term agreements being core standards. We show that distributive and procedural fairness are closely linked. Although organic–fair initiatives and their main protagonists focus on external fairness, such as fair prices for farmers, thus far internal concerns, such as minimum wages or employee involvement, are of less importance. The initiatives exemplify the differentiation of quality-oriented organic food producers in highly competitive markets. They have the potential to revitalise the original values of the sector and contribute significantly to ethical standardization therein. In order to make a substantial contribution to future development of the sector, a critical examination of aspects of internal fairness as well as the formulation of appropriate standards in this field is recommended.     

Mineral sector technologies: policy implications for developing countries

Over the past 20 years the mining industry has been a leader in the conception and application of advanced technologies. New thinking about earth tectonics as well as advances in geophysics, geochemistry, remote sensing, data processing and communications permit more effective and accurate geological exploration. Mechanization, more durable materials and more powerful explosives, as well as computer aided mine design and management have led to substantial gains in productivity. Minerals processing has similarly seen significant technological advances including solvent extraction, electro-winning of metal ores, bath smelting techniques, cyanide leach to produce gold, and bioleaching of sulphide and refractory ores. New technologies have dramatically improved mine health and safety as well as making possible control of water and air pollution. Improved communication and transport have stimulated competition and fostered the internationalization of mineral commodity prices. As these technologies are essentially market driven, developing countries should continue current efforts towards economic liberalization. Promoting investment in mining entails lifting many of the restrictions and taxes that can hinder efficient exploration and development. We examine some developments that have greatly increased the efficiency of exploration, mining and marketing. To obtain maximum benefit from many of these technologies requires governments to adopt a wide range of new policies which are examined in some detail.