Conceptualization and parameterization of the market price mechanism in the WORLD6 model for metals, materials, and foss
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ORIGINAL PAPER
Conceptualization and parameterization of the market price mechanism in the WORLD6 model for metals, materials, and fossil fuels Harald Ulrik Sverdrup 1,2
&
Anna Hulda Olafsdottir 1
Received: 11 January 2019 / Accepted: 21 March 2019 # Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract A model for market price modeling in an integrated global model for resource supply has been developed and successfully applied in the WORLD6 model. A dynamic market and price model has been developed, based on immediately tradable amounts, affected by supply and demand. Real-world drivers and a systems approach with feedbacks in the price setting and market mechanisms were used in this study, without the model becoming too complex. Observed cause and effects and feedbacks were included, in order to have explanatory power or be truer to economic reality in terms of both structure and parameter settings. The model is adaptive from a fully free dynamic market to a biased or oligarchic market, depending on the condition. The market price model was parameterized for copper, zinc, lead, nickel, iron, aluminum, wolfram, niobium, molybdenum, lithium, vanadium, gold, silver, platinum, palladium, and tin, and for fossil fuels like oil and hard coal. The equation has the shape: price = k × market amount n, where market amount is the instantly tradable amount of metal in the market arena, k is a metal-specific coefficient, and n is an exponent. The derived equations were applied in the WORLD6 model, making simulations of market price set every day endogenously in the model possible. The price mechanism proposed here perform well in tests against observed data when included in the WORLD6 model. The obtained results were compared to a price curve for coffee and a similar pattern was found. Keywords WORLD6 . System dynamics . Metal price . Mining . Recycling . Dynamic modeling
Introduction There is a general interest in being able to model commodity prices as a function of the market mechanism work and as affected by supply and demand. The traditional mass flow models or econometric models rely on predefined exogeneous time series for market growth or market prices for their simulations. Ideally, it would be better to generate the prices inside the models from basic trading principles.
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s13563-019-00182-7) contains supplementary material, which is available to authorized users. * Harald Ulrik Sverdrup [email protected] 1
Industrial Engineering, University of Iceland, VR-II, Hjarðarhagi 6, IS-107 Reykjavik, Iceland
2
Norse Metal a/s, Industriveien 23, Elverum, Norway
WORLD6 is a comprehensive model for assessing supply sustainability of natural resources. It is being used for longterm sustainability assessments of global natural resources supply sustainability (metals, materials, oil, gas, coal, phosphorus minerals). Metals, hydrocarbons, and inorganic materials are fossil resources, being extracted at rates thousands of t
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