Explanatory Price Equations

Abstract

In the 1970s and 1980s, the diversification of metals-producing companies across countries and products created a single market. For the most part, metals prices moved together in response to economy-wide forces. While the level of copper prices differed from that of aluminum, because of differences by grade in mining and milling costs, year-to-year changes in the two sets of prices moved together. When copper demand increased (while aluminum did not), copper prices rose relative to aluminum; this caused, however, a shift of resources by the diversified metals-producing companies from aluminum to copper supply until the original price differentials were restored. Such convergence of year-to-year changes in prices of one or the other metal has taken place in a general way in the last twenty years. A sufficient number of producers have operated across the different metals to expand supply where specific ore prices were relatively high and to reduce supply where prices were low relative to the overall metals price index.³²