Sunday, March 25, 2012

Copper Volume Forecasting

Similar to our review of Cochilco's price forecasts, we decided to look at copper production forecasts by ICSG. Given that ICSG and Cochilco are relatively transparent organization and make their respective forecasts available to the public domain, such reviews may be viewed as somewhat unfair. However, we do understand the challenges of forecasting and are certainly not claiming that we would do better.

The following graph plots the development for forecast world copper production volume as a percentage of the ultimate or last available production volume for the calendar years 2005 to 2011. Reading example: On 28 April 2006 (1.67 years before the end of calendar year 2007), ICSG forecasted a production volume 16'296 million tons for 2007, while the actual production volume was 15'483 millions tons (as reported on 30 April 2012). The initial forecast is 5.4% higher than the final value (depicted as a large green triangle at <-1.67, 5.4%>).

Clearly production volumes have been systematically overestimated. This is interesting because the same asymmetric forecast development is not found for surplus/deficit numbers of refined copper, although the numbers for 2007 and 2010 saw large movements from a forecasted surplus to a realized deficit of refined copper.

Saturday, March 10, 2012

Correlation between Copper and Chilean Peso (1)

In September 2009, the Chilean National Bank (Banco Central de Chile) provided a good summary of the dependency of the Chilean economy on copper exports

The main theme of the presentation is that while copper continues to be very important, the growth of non-copper exports have gained higher importance and that Chile has managed its natural resource curse successfully.

The latter is probably true, but because of elevated copper prices for the last couple of years the copper exports as a percentage of total export have actually increased and now stood at 55% in 2011 (data source 1996-2010, 2011 own estimates, note that manufactured copper products like copper wire are included under 'Other').

This is reflected in higher correlation between Copper and Chilean Peso (CLP) in most recent years (2001-2011 compared to 1990-2000). R2 has increased from 41% to 69%, the absolute value of beta has increased from 13% to 24% (reading example: a 10% increase in Copper prices leads to a 2.4% strengthening of the CLP [CLPUSD decreasing]).