Wednesday, January 25, 2012

Copper Price Forecasting

Forecasting is notoriously difficult, the same applies to copper prices. We have looked at Cochilco's copper price forecasts since 2004 and tracked the following three prices for each calendar year (all values in cents per pound):

  1. Spot price as of June 30, Y-1 (i.e. spot price on June 30, 2004 is 122 cents/pound)
  2. Forecast by Cochilco made on June 30, Y-1 for the average of Y (i.e. forecast made on June 30, 2004 for average of 2005 is 118 cents per pound)
  3. Actual average spot prices for Y (i.e. the average spot price for 2005 is 167 cents per pound)

The deviation of the forecasts and effective value compared to the spot price at the date of the forecast can be plotted as follows:

The correlation between the two time series is -0.07, indicating no predictive power whatsoever.

Actually we don't want to pick on Cochilco. We choose them because they are most likely least biased of all the forecasters. They also might have some additional data and insight being associated with the largest copper producing country.

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