Since 2008, we have
been reporting that the evolution of various components of CPI and PPI in the
United States is not a random process but rather a predetermined one with
long-term sustainable trends [1, 2].
Using these trends, one can predict consumer and producer price indices for
various goods, services, and commodities. For example, in [3, 4], we
presented the evolution for many goods and services with varying weights in the CPI. There are more goods, services, and commodities
of interest for producers, consumers, and investors, however. Here we revisit and report the success of our
predictions for the index for copper
ores (the previous revision was
two years ago). This is an
example showing that some commodity prices are well predictable.
Figure 1
displays the difference between PPI and the index for copper ores since 1988.
This difference has a remarkable history: no big change between 1988 and 2003,
and then a sudden surge in the copper index started. The peak was reached in
the middle of 2006. It survived before the second quarter of 2008. Then the copper
index dropped by almost 300 units back to the overall PPI level. In 2009, the PPI
of copper increased above 500. Since
2012, the price index of copper has been falling along a linear trend. One may consider
these changes as associated with the rise-fall cycles in oil price, but there
is no one-to-one correspondence.
We have to
admit that there are no sustainable trends in the copper index and the future
of the copper ores index cannot be predicted at a ten-year horizon. Since 2012,
the difference is on its way to the zero level. Soon it may reach the trough observed
in 2009 (see Figure 2 for relative or normalized prices). Two years ago, we formulated
our prediction in a form that there was “no sign that the PPI of copper is
going to change its long-term decline”. And this was
a correct forecast – the copper price still follows negative trend. If the pivot
point for the current trend in the difference between copper PPI and the
overall PPI is around 0 then the copper price will be falling another two
years. This is in line with our prediction of further decrease in energy prices
in our
previous post.
Figure
1. Evolution of the price index of copper ores relative to the PPI.
Figure
2. Evolution of the difference between the overall PPI and the price index of
copper ores normalized to the PPI.
Aluminium price had a short-term excursions
into higher figures in 2014 and quickly returned to ite negative trend in 2015. This was a
dramatic fluctuation, but not the biggest one in the past 10 years as Figure 3
shows. In 2014, we expected
the difference to follow the green line into 2016, and this fluctuation was
a major deviation from the expected behavior. Aluminum is a commodity, which
suddenly changed its behavior. Currently, the price of aluminum follows the
green-line-negative linear trend. From historical perspective, however, there
is no room for further fall in aluminum price as Figure 4 shiows. It might be the
best time to consider investment strategy for the next 5 years.
Figure
3. Evolution of the difference between the overall PPI and the price index of aluminum
scrap.
Figure 4. Historical time series
for the difference between aliminium and overall PPI. Aluminum price may soon
reache the historical minimum.
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