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International Copper Market  

The international copper market has historically been characterized by extreme price swings due to short-term changes in supply and demand. This price volatility has led to disruptions in third world national economies that depend on copper for foreign exchange and a stable balance of payments. Because the price of copper is usually a small part of the cost of the finished goods in which copper is used, the short-term elasticity of demand for copper is relatively low. Because of the limited number of ways in which copper supply can be expanded in the short run, the short-term elasticity of supply is also relatively low. Finally, since much copper is bought and sold through long-term contracts, the amount of copper traded on the international metal exchanges is relatively small. These three factors combine to cause large swings in copper prices on the international exchanges. Since contract prices are often tied to exchange prices, the volatility has the same effect on developing countries as if all the metal were traded on these exchanges.

As a result of the success of the international oil cartel, OPEC, to control prices, the copper producing countries began to determine the viability of an international copper cartel. What factors made OPEC work in the short run. What factors would make it vulnerable in the long run? In 1980 the principal of IMS Quantum developed a simulation model to evaluate the potential effectiveness of a large international copper stockpile to stabilize prices by purchasing copper when the price fell below a predetermined floor and selling copper when the price moved above a predetermined ceiling. The model simulated operations in the historic period from 1965 to 1980. It examined a number of trading rules to determine the stockpile's ability to stabilize prices and create a profit for its administrators.

The process of building and running such a simulation model was invaluable in determining the factors that influenced success. The subtleties associated with defining success were evident. The kinds of tradeoffs that stockpile administrators must make became abundantly clear. The importance of market characteristics as a basis for short and long-term performance was crucial to the success of the operation. The choice of optimal trading rules was fundamental in influencing long-term stockpile impact on the market and in maximizing return on invested capital.

IMS Quantum specialized in developing Integrated Decision and Planning Models that uncover hidden factors that can determine the success or failure of an enterprise. Whether the goal is to maximize the effectiveness of a government agency, optimize a manufacturing operation, or to seek strategies in the global economy, IMS Quantum is prepared to provide the tools for charting courses in complex and changing business and public policy environments.

 
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