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.     

Impact of crude oil price volatility on economic activities: An empirical investigation in the Thai economy

This paper empirically examines the impact of oil price volatility on key macroeconomic indicators of Thailand. Following Andersen et al. [2004. Analytical evaluation of volatility forecasts. International Economic Review 45(4), 1079–1110], quarterly oil price volatility is measured by using the realized volatility (RV). The impact of the oil price volatility is investigated using the vector auto-regression (VAR) system. The Granger causality test, impulse response functions, and variance decomposition show that oil price volatility has significant impact on macroeconomic indicators, such as unemployment and investment, over the period from 1993Q1 to 2006Q4. Perron's [1997. Further evidence on breaking trend functions in macroeconomic variables. Journal of Econometrics 80(2), 355–385] test identifies structural breaks in all the concerned variables during the time of the Asian Financial Crisis (1997–1998). A VAR for the post-crisis period shows that the impact of oil price volatility is transmitted to budget deficit. The floating exchange rate regime introduced after the crisis may be the key contributor to this new channel of impact.     

Assessing instruments for mixed household solid waste collection services in the Flemish region of Belgium

Instruments to reduce waste can be divided into three groups: first, pecuniary incentives; second, service level; finally, measurements stimulating prevention and waste reduction. Also specific characteristics of the community determine the amount of waste generated. We evaluate whether findings in literature on effectiveness of policy measures are valid for Belgium, specifically for the Flemish region. The policy mix instituted by the Flemish authorities in the ‘implementation plan household waste 2003–2007’ and implemented by local authorities, is assessed. Multiple regression analysis identifies those measurements having the greatest impact on household solid waste.We found an income elasticity of 0.326. Also the provided service level has a significant impact. Pecuniary incentives are effective instruments in reducing waste, with a price elasticity of −0.139. Furthermore, a higher percentage of direct costs, directly attributable to waste services, borne by households, reduces waste. A consequent implementation of the ‘polluter pays’ principle proves to be effective.     

Whither copper prices? : Golden years or a return to bust?

By comparing the 1964–1973 period of exceptional strength in the copper price with current market conditions, a more informed judgement can be made about the longevity of the current boom in the copper price. Preconditions for an extended period of strong real prices appear to be in place, while there are few signs of an imminent price collapse.     

Can oligopsony power be measured? The case of U.S. old newspapers market

This paper uses an index analogous to Lerner-index in the input market to derive a price–cost margin that measures input exploitation by few large buyers. This paper identifies oligopsony characteristics associated with the old newspaper (ONP) input market for recycled-content newsprint manufacture and then examines the impacts of market performances on ONP input prices. The wastepaper recycling market, in particular, ONP has not been successful in utilizing the ONP generated. The existence of high sunk costs for entry to the market, along with the small numbers of buyers in the old newspapers market, were the reasons to believe that the waste paper industry had oligopsony elements among paper recycling mills. The regional oligopsony/oligopoly indices were derived and the impact of these market powers on ONP input prices were examined for period 1972–1995. The findings of this study were: oligopsony elements were present to certain degrees among the recycled-content newsprint manufacturers; and the oligopsony market power enabled these mills to exert a larger price–cost margin on ONP input market.     

The effect of the price of gold on its production: a time-series analysis

Production of gold in Australia has grown strongly in recent years. Australia is ranked the world's third largest gold producer, only South Africa and the US produce more than Australia. Most of the Australian gold production comes from one of its states, Western Australia. In this paper, we use recent developments in econometric time series analysis to present an analysis of gold production and prices during the period 1948–1994. The results show that if the price of gold (relative to costs) increases by 10% and the price (in levels) remain the same for the next 5 years, then in the first year gold production will rise by 0.3%; in the second year by 2.2%; in the third year by 7.4%; in the fourth year by 8.9% and in the fifth year by 10.7%.     

Influence of production costs and inventories on mineral prices

The purpose of this article is to broaden understanding of the factors which exert major influences on prices for industrial metals beyond the widely recognized tendency for prices and inventories to move in opposite directions. Specifically, the relationship between inventory levels and price volatility is examined. In addition, the relationship between prices and production costs is also examined. A few thoughts are expressed on the relationship between prices and industry structure. The paper includes a qualitative discussion about why a link should exist between prices and production costs, a graph illustrating the relationship between prices and inventories, and econometric equations quantifying the relationship between prices, production costs and inventories.     

An overview of global gold market and gold price forecasting

The global gold market has recently attracted a lot of attention and the price of gold is relatively higher than its historical trend. For mining companies to mitigate risk and uncertainty in gold price fluctuations, make hedging, future investment and evaluation decisions, depend on forecasting future price trends. The first section of this paper reviews the world gold market and the historical trend of gold prices from January 1968 to December 2008. This is followed by an investigation into the relationship between gold price and other key influencing variables, such as oil price and global inflation over the last 40 years. The second section applies a modified econometric version of the long-term trend reverting jump and dip diffusion model for forecasting natural-resource commodity prices. This method addresses the deficiencies of previous models, such as jumps and dips as parameters and unit root test for long-term trends. The model proposes that historical data of mineral commodities have three terms to demonstrate fluctuation of prices: a long-term trend reversion component, a diffusion component and a jump or dip component. The model calculates each term individually to estimate future prices of mineral commodities. The study validates the model and estimates the gold price for the next 10 years, based on monthly historical data of nominal gold price.     

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.     

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.     

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.     

The dynamics of landfill diversion: Economic drivers, policy factors and spatial issues: Evidence from Italy using provincial panel data

Waste disposal is an issue that is becoming increasingly important in policy terms in the European Union, and in Italy, a country showing strong geographical heterogeneity in waste management. This paper analyses the process of decoupling/delinking between economic growth and landfilling trends in a framework where economic, policy, geographical elements and spatial issues are all considered as drivers behind the phenomenon. We exploit an original and very rich provincial panel dataset over 1999–2005 for the 103 Italian provinces. Evidence shows that the observed ‘absolute’ decoupling between economic growth and landfilling is driven by a mix of structural factors. Among the main factors, population density, more than the provincial income level, emerges as a crucial driver: local opportunity costs and landfill externalities matter in shaping waste policies and local commitment to a transition away from landfilling of waste (landfill diversion). However, not only structural factors are relevant. If on the one hand landfill taxes are not a significant driver of the phenomenon, waste management tools, such as separated collection for recycling, and the tariff system connected to waste services, bring about significant effect on the amount of landfilled waste. Moreover, regarding the analysis of spatial interrelations across provinces, we note that the presence of incinerators in nearby provinces increases landfill diversion, due probably to free riding behaviour or intra-provinces ‘agreements’ on waste management; this is not true for nearby landfill sites, that cause for a given province a strong lock in effect. Future research could strengthen the analysis of policy effectiveness at regional level, focusing on policy endogeneity, and the full investigation of spatial correlations in waste disposal performances.     

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.     

A note on empty bottles

This note examines the second-order conditions of the Massel-Parrish (M-P) model of a beverage market in which a monopolist producer of beverages packaged in ‘private mould’ bottles has monopsony power in the market for the empty bottles. Customers pay only the shelf price if they return the empty bottle; and, the shelf price plus the forfeited deposit if they discard it. The analysis determines directional changes in the optimal shelf price, deposit levels, and unit sales resulting from changes in each of five demand and three supply parameters. Potential effects of current legislation requiring mandatory deposits on all beverage containers are also analysed.     

Investor demand and spot commodity prices

The on-going debate over the influence of investor demand on spot commodity prices largely attempts to assess this influence by measuring the growth in investor demand in recent years. Given the serious data problems that plague such analyses, this article pursues another approach in the hope of providing useful insights into the impact of investor demand on spot commodity prices. It focuses on the mechanisms by which investor demand affects spot prices, and in particular on two questions. First, how does an increase in investor demand on the futures markets affect the spot market and spot price? Second, when investor demand is increasing and pushing a commodity's price up, do physical stocks of the commodity also have to be rising, as economists and others widely assume?On the first question, the article concludes that a surge in investor demand raising prices on the futures markets will have a direct and comparable effect on the spot market prices when these markets are in strong contango. However, when markets are in weak contango or backwardation, price movements in the futures markets have a much looser effect on spot prices. As a result, changes in investor demand on the futures markets may have little or no influence on spot prices in the absence of a strong contango. Instead, changes in fundamentals (that is, producer supply and consumer demand) and possibly changes in investor demand taking place directly on the spot market largely determine the spot price at such times.On the second question, the article shows that investor demand can be pushing up a commodity's price even when investor stocks are falling, despite the widespread presumption to the contrary.     

World copper market, 1973–1982, and international stabilization policies

This article critically examines international price stabilization policy in relation to the main features of the world copper market and the structural changes that have affected the industry in the decade up to 1982. The first section summarizes the main features of the world copper market, briefly discussing the principal structural changes; the second part examines the recent pattern of investment in copper and changes in ownership of some copper producing companies resulting from the need for improved cash flows due to the adverse effects of the recession; and the third part analyses the practical and theoretical issues relating to the question of price instability. A number of formidable problems are likely to arise from such price stabilization policies and it is concluded that it is because of these difficulties that the policies have not been implemented. Consequently, international commodity agreements designed to minimize or avoid price instability have proved difficult to conclude. New questions on which consensus is likely should be examined to promote intergovernmental co-operation, and hence market stability. With that end in view, this article lists some new questions that could form the basis of an agenda for exploratory intergovernmental discussions on copper.     

Financial and economic factors affecting the lignite prices in Turkey: An analysis of Soma and Can lignites

Using a simultaneous equation econometric model based on yearly data between 1997 and 2006 for the Aegean Lignite Enterprise this study examines factors that affect the lignite price in Turkey. The Aegean Lignite Enterprise produces and sells the lignite of Soma and Can and their data reflect the general Turkish situation. The results suggest that (1) lignite prices sold to the industry increase (decrease) depending on the decrease (increase) in the industrial production and (2) total electricity production and electricity price are the most important factors that potential investors and related persons have to take into consideration for the pricing of lignite in the thermal power plant market.     

Feasibility,forward pricing and returns: Recent developments in the literature on futures trading

In recent years the feasibility conditions for market establishment and the information value of futures markets have been central issues in futures market research. This paper first discusses recent developments under the heading of feasibility conditions, including the obsolescence of the commodity characteristics approach and the search for a comprehensive framework. Second, futures markets collect and disseminate information, and in so doing they are centres of rational price formation, and the forms of tests that have been developed to ascertain whether they perform this function efficiently are considered. Futures markets also perform a forward pricing function: their prices may be regarded as market anticipations of subsequent cash prices. 1970s' literature has addressed this question, finding differences in performance between continuous and non-continuous inventory commodities. This paper discusses the reasons for and economic implications of these results.     

Estimating the volatility of mining projects considering price and operating cost uncertainties

In the real option pricing model of valuation and decision making, the estimation of future volatility is a key input parameter. For traded commodities or financial assets, past volatility is used as a proxy for predictions. But, for projects, this approach is not feasible because, in most cases, historical data of traded projects are not available. As an alternate solution, it is usually assumed that project volatility is equal to that of commodity price. In order to investigate this assumption, we estimate the project volatility considering that both commodity price and operating cost evolve as a geometric Brownian motion (GBM). Results of a hypothetical gold mining project indicate that project volatility is higher than that of commodity price and it only drops to price volatility under very unrealistic industry conditions, such as very high prices or very low production costs. In addition, we find that project volatility is independent of production capacity and taxation, but depends on increments in price and cost, as well as strongly on their degree of correlation.     

Oil spills on other commodities

This paper examines the effect of crude oil prices on the prices of 35 internationally traded primary commodities for the 1960–2005 period. It finds that the pass-through of crude oil price changes to the overall non-energy commodity index is 0.16. At a more disaggregated level, the fertilizer index had the highest pass-through (0.33), followed by agriculture (0.17), and metals (0.11). The prices of precious metals also exhibited a strong response to crude oil price. In terms of individual commodities, the estimates of the food group exhibited remarkable similarity while those of raw materials and metals gave a mixed picture. The implication is that if crude oil prices remain high for some time, as most analysts expect, then the recent commodity price boom is likely to last much longer than earlier booms, at least for food commodities. The other commodities, however, are likely to follow diverging paths. On the methodological side, the results show that price indices, while providing useful summary statistics, they need to be supplemented by individual commodity analysis.