A COMPUTER SIMULATION MODEL OF THE ECONOMIC STOCKPILING OF COPPER EMPLOYING AN AUTOMATIC MECHANISM FOR THE ADJUSTMENT OF PRICES

ecent concern over the security of primary commodity supplies and prices has sparked renewed interest in the control of international markets for these products. Economic stockpiling as a means of effecting more stable prices is the subject of this study in which a computer simulation model is constructed utilizing historic prices and consumption of copper to determine what would have been the effect in that historic setting if economic stockpiling had taken place. Emphasis is placed on the amount of price stabilization achieved, the costs of stockpiling taking trading profits into account, and the ability of the stockpile to track the long-run price of copper. To achieve this final objective, an automatic mechanism is used which adjusts the prices about which stabilization occurs according to the relative levels of copper stocks or money capital held by the stockpile. Results of the analyses lead to six major conclusions. (1) The price range which determines the buy and sell points of the stockpile maximizes stockpile profitability at about plus or minus 20 percent from a central reference price. (2) While the stockpile can make a positive return on investment, results indicate that such returns would not be high enough to compete with commercial investment opportunities. (3) The automatic adjustment mechanism is an effective way for the stockpile to track long-run prices but has certain important caveats associated with its use. (4) Price stabilization is achieved as measured by reductions in price volatility of from 30 to 45 percent, depending on the specific scenario considered. (5) Copper stockpiles of from...