Saturday, February 25, 2012

Relationship between Copper Price and Copper Production / Consumption

In principle we would like to analyze whether there is a dependency between world copper consumption and copper price. To our knowledge there is no long range world consumption data available. However, USGS provides US consumption and world production data.

As we are only interested in change metrics (not necessarily the absolute values themselves), we bravely chose to take change of world production as a substitute for world consumption, thereby ignoring changes in recycling  rates and stock levels. The data looks as follows:

Looking at the annual changes is more interesting to establish any relationship whether copper is a good indicator of consumption. this looks as follows (each dot represents a calendar year):

Ten year rolling correlation coefficient (and R2) looks as follows:

Our conclusions are as follows:
  • Until 1980, Copper price was largely demand driven, with higher demand driving up copper prices. Production seemingly matched consumption or the changes to recycling rates and stock levels were not material enough to distort the picture.
  • Since 1980 but especially for the last 15 years, the situation has become much more distorted, while volatility of world production (on a percentage basis) is at its lowest level since 1900, price volatility is at its maximum.
  • Accordingly higher prices have recently not translated in higher production. At this stage of the analysis, it remains open to us what the underlying reasons are
We have also looked at the question whether copper price to copper production relationship is of lagging, concurrent or leading nature. The data suggested concurrent, but given that we have worked with annual data points we may need to refine this with monthly or quarterly data.

Friday, February 10, 2012

GDP per Capita Time Series 1820 - 2008 (Western Europe)

as a preparation for the pending correlation analysis between GDP and Copper Consumption/Production, I looked at the Maddison data from the Groningen Growth and Development Centre.

GDP data is expressed in Geary-Khamis dollars, see also UN Statistics Division definition. Obviously historical GDP data is fraught with uncertainty both as a result of data availability and methodological issues (I'm not really a fan of PPP adjustments). Also some of the countries didn't exist or territories changed during the 1820 - 2008 period. Therefore, the data is based on today's frontiers.

The following graphs shows the average GDP per capita for Western Europe including the following 30 countries: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, United Kingdom (including Ireland until 1920), Ireland, Greece, Spain, Portugal, Other (Andorra, Cyprus, Faeroe Islands, Gibraltar, Greenland, Guernsey, Iceland, Isle of Man, Jersey, Liechtenstein, Luxembourg, Malta, Monaco, San Marino).

The income per capita relative to the Western Europe average for the 16 medium and large countries:

And the richest and poorest country for any given year.

Calculation details can be found here.