THESIS - Forecasting Metal Prices Using Geostatistics

GEOSTATISTICS
APPLIED
FORECASTING METAL
TO
PRICES
By
R e g i n a l d L l o y d Faulkner
.Sc.,
The U n i v e r s i t y o f B r i t i s h Columbia, 1974
THESIS
THE
SUBMITTED
IN
REQUIREMENTS
PARTIAL
FULFILLMENT
OF
FOR T H E D E G R E E O F
M A S T E R OF A P P L I E D
SCIENCE
in
THE
F A C U L T Y OF G R A D U A T E
STUDIES
( Mining and M i n e r a l Process E n g i n e e r i n g )

We accept t h i s t h e s i s as conforming
t o the r e q u i r e d standard
THE
UNIVERSITY
OF B R I T I S H
MAY
Copyright
COLUMBIA
1988
R e g i n a l d L l o y d Faulkner,
1988
In
presenting
this
degree at the
thesis in
University of
partial
fulfilment
of
this
department
or
publication of
thesis for
by
his
or
requirements
scholarly purposes may be granted

her
representatives.
It
is
by the
understood
DE-6(3/81>
that
head of
copying
my
or
this thesis for financial gain shall not be allowed without my written
M.<K.e./ft_( ^ T f r C e S S
The University of British Columbia

1956 Main Mall
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V6T 1Y3
Date
an advanced
agree that permission for extensive
permission.
Department of
for
British Columbia, I agree that the Library shall make it
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copying of
the
&*.ii*a.ejri^
ABSTRACT
The
objective
effectiveness
of
copper, l e a d and
average
metal
was
1986.
if
predictor
but
for
from
the
lead
in this
and
kriging.
period
1884
price
to
1986
to
series
to
each
used
predict
and
only
future
were
the
prices
The
for
annual
deflated
a base o f
were
1917;
metal
to
1984
divided
1918
into
prices.
to
into
1953;
by
three
1954
to
variograms
from the
from
the
extrapolated
was
used
residuals
future
as
the
price
prices
was
f i t to
metal-time
by
ordinary
most r e c e n t
polynomial
the
curve
time
to
semi-variograms
the
from
most
recent
price-time
made by t a k i n g t h a t p o r t i o n
p r i c e to
showed pure nugget e f f e c t and

polynomial
each
in
s p h e r i c a l models which were used
Within
highest
for
t o the
experimental
s e r i e s , a f u r t h e r s u b d i v i s i o n was
period
future
applied
then f i t t i n g
period
models gave a good
fitting
prices.
most r e c e n t
computed
predict
computing
future
the
Spherical
K r i g i n g was
series,
residuals
zinc
semi-variograms
were
for
and
thesis.
Universal
price-time
the
of
investigate
London Metal Exchange.
time p e r i o d s v i z . 1884
experimental
period
to
the
to
of the data showed t h a t the requirement of s t a t i o n a r i t y
included
the
was
For copper each of the t h r e e time p e r i o d s were s t u d i e d
detail,
the
z i n c on
as
thesis
s e r i e s with reference
satisfied
distinct
this
kriging
prices
constant p r i c e
Analysis
of
from
1986.
Experimental
fitted
polynomial
consequently e x t r a p o l a t i o n
price
predictor.
estimates
i i
were
The
compared
semicurves
of
kriged
to
of
the
and
future
p r i c e s e s t i m a t e d by
squared
For
1953
ordinary
f o u r o f the
the
simple
p r i c e estimates.
random
This
was
i n t h i s period
and
government p r i c e
War
and
the
f i v e time s e r i e s analyzed, o r d i n a r y
best f u t u r e
kriging.
variability
was
marginally
probably
due
associated
l e a d by
most a c c u r a t e f o r z i n c by o r d i n a r y
kriging.
results
should include:
are
encouraging
applying
: analyzing
to
and
the
low
Great
for
than
price
Depression
Second World
1985
universal
future
1918
better
w i t h the
Specific forecasts
kriging
copper from
r e s u l t i n g from the
controls
Korean War.
walk
For
were most a c c u r a t e f o r copper and
The
r e s i d u a l sums of
differences.
produced the
to
a simple random walk u s i n g
and
1986
kriging
and
investigations
o t h e r k r i g i n g methods
d a i l y and
monthly p r i c e s
: comparing r e s u l t s w i t h more s o p h i s t i c a t e d
series analysis
techniques.
time
TABLE OF CONTENTS
Chapter
page
ABSTRACT
i i .
TABLE OF CONTENTS
iv.
LIST OF TABLES
v i i .
LIST OF FIGURES
x.
ACKNOWLEDGEMENT
x i i .
1.
INTRODUCTION
1.
2.
LITERATURE SURVEY
4.
3.
2.1
SURVEY
4.
2.2
METAL PRICE BEHAVIOUR AND PREDICTION
13.
2.3
SUMMARY
14.
THEORY OF REGIONALIZED VARIABLES

3.1
16.
THEORY OF RANDOM FUNCTIONS

3.1.1
REALIZATIONS
3.1.2
STATIONARITY
3.1.3
INTRINSIC HYPOTHESIS
3.1.4
QUASI-STATIONARITY AND QUASI-INTRINSIC
HYPOTHESIS
16.
17.
17.
18.
3.2
SEMI-VARIOGRAM
3.2.1
PROPERTIES OF THE SEMI-VARIOGRAM
19.
20.
3.3
SEMI-VARIOGRAM MODELS
3.3.1
SPHERICAL MODEL
3.3.2
LINEAR MODEL
3.3.3
PURE NUGGET EFFECT
22.
22.
23.
25.
3.4
KRIGING
3.4.1
KRIGING ESTIMATOR
3.4.2
ORDINARY KRIGING
3.4.3
UNIVERSAL KRIGING
3.4.4
MATRIX SOLUTION AND ESTIMATION VARIANCE
25.
26.
27.
28.
30.
i v
19.
TABLE OF CONTENTS cont'd

Chapter
4.
page
DATA AND METHODOLOGY
32.
4.1
DATA
32.
4.2
METHODOLOGY
34.
5.
RESULTS AND DISCUSSION

5.1
COPPER
5.1.1
COPPER:
5.1.2
COPPER:
5.1.3
COPPER:
5.1.4
COPPER:
5.1.5
COPPER:
5.1.6
COPPER:
5.2
LEAD
5.2.1
5.2.2
5.2.3
5.2.4
LEAD:
LEAD:
LEAD:
LEAD:
VARIOGRAPHY; RESULTS
VARIOGRAPHY; DISCUSSION
KRIGING; RESULTS 1954 t o 1986
KRIGING; DISCUSSION.
62.
62.
62.
64.
70.
5.3
ZINC
5.3.1
5.3.2
5.3.3
5.3.4
ZINC:
ZINC:
ZINC:
ZINC:
KRIGING; DISCUSSION
70.
71.
71.
73.
79.
5.4
6.
38.
KRIGING; DISCUSSION
SUMMARY
38.
40.
43.
45.
46.
47.
52.
79.
CONCLUSIONS
83.
6.1
FURTHER WORK
83.
6.2
FORECASTING 1987 and 1988
84.
BIBLIOGRAPHY
88.
APPENDIX 1 LME CURRENT PRICES AND WHOLESALE PRICE INDEX
97.
APPENDIX 2 EXPERIMENTAL SEMI-VARIOGRAMS
101.
APPENDIX 3 SQUARED DIFFERENCES
113.
TABLE OF CONTENTS
cont'd
page
APPENDIX 4 POLYNOMIAL CURVES
126.
APPENDIX 5 ZINC PRICES FREQUENCIES
133.
v i
LIST OF TABLES
Table
page
1.
SUMS OF SQUARED DIFFERENCES COPPER
53.
2.
WEIGHTING FACTORS LINEAR
56.
3.
THEORETICAL LINEAR, SPHERICAL SEMI-VARIANCES
59.
4.
WEIGHTING FACTORS SPHERICAL
5.
SUMS OF SQUARED DIFFERENCES LEAD
69.
6.
SUMS OF SQUARED DIFFERENCES ZINC
78.
7.
1987 AND 1988 METAL PRICE FORECASTS
85.
60.
APPENDIX 1
97.
1.
98.
LME CURRENT PRICES AND WHOLESALE PRICE INDEX
APPENDIX 2
101.
1.
EXPERIMENTAL SEMI-VARIOGRAM, COPPER 1884 t o 1917
102.
2.
103.
3.
104.
4.
EXPERIMENTAL SEMI-VARIOGRAM,
RESIDUALS
COPPER 1954 t o 1986
105.
5.
RESIDUALS
COPPER 1973 t o 1986
6.
EXPERIMENTAL SEMI-VARIOGRAM, LEAD 1954 t o 1986
107.
7.
RESIDUALS
LEAD 1954 t o 1986
108.
8.
RESIDUALS
LEAD 1979 t o 1986
9.
ZINC 1954 t o 1986
10.
RESIDUALS
ZINC 1954 t o 1986
11.
RESIDUALS
ZINC 1974 t o 1986
vii
106.
109.
110.
111.
112.
LIST OF TABLES cont'd
Table
APPENDIX 3
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
page
113.
SQUARED DIFFERENCES, COPPER 1885 t o 1917

SPHERICAL, ORDINARY KRIGING
114.

HOLE EFFECT, ORDINARY KRIGING
115.

116.

117.

SPHERICAL, UNIVERSAL KRIGING
118.

PURE NUGGET EFFECT
119.
SQUARED DIFFERENCES, LEAD 1954 t o 1986

120.

121.

PURE NUGGET EFFECT
122.
SQUARED DIFFERENCES, ZINC 1954 t o 1986

123.

124.

PURE NUGGET EFFECT
125.
APPENDIX 4
126.
1.
POLYNOMIAL CURVE, COPPER 1954 t o 1986
127.
2.
POLYNOMIAL CURVE, COPPER 1973 t o 1986
128.
3.
POLYNOMIAL CURVE, LEAD 1954 t o 1986
129.
4.
POLYNOMIAL CURVE, LEAD 1979 t o 1986
130.
5.
POLYNOMIAL CURVE, ZINC 1954 t o 1986
131.
6.
POLYNOMIAL CURVE, ZINC 1974 t o 1986
132.
v i i i
LIST OF TABLES cont'd
Table
page
APPENDIX 5
133.
1.
134.
FREQUENCIES OF ZINC PRICES 1954 t o 1986
LIST OF FIGURES
Figure
page
1.
THEORETICAL SPHERICAL SEMI-VARIOGRAM
24.
2.
THEORETICAL LINEAR SEMI-VARIOGRAM
24.
3.
PURE NUGGET EFFECT SEMI-VARIOGRAM
24.
4.
LONDON METAL EXCHANGE ANNUAL COPPER PRICES
39.
5.
EXPERIMENTAL SEMI-VARIOGRAMS OF LONDON METAL EXCHANGE

COPPER PRICES, 1884 t o 1917, 1918 t o 1953, 1953 t o 1986
39.
6.
SEMI-VARIOGRAM OF LME 1884 t o 1917 COPPER PRICES
42.
7.
42.
8.
42.
9.
LME 1954 t o 1986 CONSTANT COPPER PRICES: QUADRATIC
49.
10. RESIDUALS 1954 t o 1986 LME COPPER PRICES
49.
11. SEMI-VARIOGRAM OF LME 1954 t o 1986 COPPER PRICES:

RESIDUALS
49.
12. LME 1973 t o 1986 CONSTANT COPPER PRICES: QUADRATIC .... 51.
13. RESIDUALS 1973 t o 1986 LME COPPER PRICES
51.
14. SEMI-VARIOGRAM OF LME 1973 t o 1986 COPPER PRICES:

RESIDUALS
51.
15. KRIGING WEIGHTS AS A FUNCTION OF A LINEAR SEMI-VARIOGRAM 55.

16. IDEALIZED SPHERICAL SEMI-VARIOGRAM MODEL
58.
17. WEIGHTING FACTORS
58.
18. LONDON METAL EXCHANGE ANNUAL LEAD PRICES
63.
19. SEMI-VARIOGRAM OF LME ANNUAL LEAD PRICES, 1954 t o 1986
63.
20. LME 1954 t o 1986 CONSTANT LEAD PRICES: QUADRATIC
65.
21. RESIDUALS 1954 t o 1986 LME LEAD PRICES
65.
22. SEMI-VARIOGRAM OF LME 1954 t o 1986 LEAD PRICES:

RESIDUALS
65.
23. LME 1979 t o 1986 CONSTANT LEAD PRICES: QUADRATIC
67.
Figure
24. RESIDUALS
LIST OF FIGURES cont'd

1979 t o 1986 LME LEAD PRICES
page
67.
25. SEMI-VARIOGRAM OF LME 1979 t o 1986 LEAD PRICES

RESIDUALS
67.
26. LONDON METAL EXCHANGE ANNUAL ZINC PRICES
72.
27. SEMI-VARIOGRAM OF LME ANNUAL ZINC PRICES, 1954 t o 1986
72.
28. LME 1954 t o 1986 CONSTANT ZINC PRICES: LINEAR
74.
29. RESIDUALS 1954 t o 1986 LME ZINC PRICES

30. SEMI-VARIOGRAM OF LME 1954 t o 1986 ZINC PRICES:
RESIDUALS
74.
31. LME 1974 t o 1986 CONSTANT ZINC PRICES: QUADRATIC
76.
32. RESIDUALS
76.
1974 t o 1986 LME ZINC PRICES
33. SEMI-VARIOGRAM OF LME 1974 t o 1986 ZINC PRICES:

RESIDUALS
74.
76.
ACKNOWLEDGEMENTS
I wish t o express my g r a t i t u d e t o A l a n J . Reed f o r h i s

c o n s i d e r a t i o n , enthusiasm
and t i m e l y a d v i c e .
My g r a t i t u d e i s
a l s o extended t o the s t a f f and students o f t h e Department o f

Mining and M i n e r a l Process E n g i n e e r i n g f o r t h e i r support and
encouragement.
I n a d d i t i o n , I would l i k e t o thank Dr. A. J .
S i n c l a i r f o r h i s counsel.
Most i m p o r t a n t l y , t h i s t h e s i s i s d e d i c a t e d t o Peggy f o r
support,
encouragement, understanding
many y e a r s .
x i i
and t o l e r a n c e , l o these
1. INTRODUCTION
It
has
been
suggested
(Journel
and
H u i j b r e g t s 1978)
that
metals p r i c e time s e r i e s are one dimensional r e g i o n a l i z e d random

variables.
This
implies
that
geostatistical
used
t o e s t i m a t e metal p r i c e s ,
such
study
apply
has
methods
be
but t o the w r i t e r s knowledge no
been p u b l i s h e d .
geostatistical
methods c o u l d
This
to
thesis
estimate
i s an
future
attempt
metal
to
prices,
s p e c i f i c a l l y copper, l e a d and z i n c p r i c e s .
Metal
planning,
detailed
The
price
from
forecasts
large
play
scale
feasibility
an
important
role
modelling of n a t i o n a l
studies
of
individual
i n economic
economies t o
mineral
deposits.
s i g n i f i c a n c e o f such f o r e c a s t s cannot be o v e r e s t i m a t e d as a
b a s i s f o r investment d e c i s i o n s .
Methods
used
to
forecast
prices
can
be
classified
into
t h r e e broad c a t e g o r i e s .
1. Resource
Approach.
2. Econometric
Models.
3. Time S e r i e s A n a l y s i s .
In the 'Resource Approach',
to the s u p p l y o f metals.
metal
T h i s approach determines the amount of
i n known r e s e r v e s and
estimates p o t e n t i a l
scarcity
implying
higher
problems
encountered
with
this
known
and
which
r e s e r v e s are
f u t u r e metal p r i c e s are r e l a t e d
prices
and
abundance
approach
the
reserves,
are the
methods
by
with
lower.
The
accuracy with
which
potential
r e s e r v e s are determined.
'Econometric
supply
and
demand
Models'
relate
f o r goods
and
1
future
metal
services.
By
prices
to
modelling
the
an
economy
the f u t u r e
demands f o r a metal
future
supply o f t h a t
future
p r i c e can be estimated.
determined
outside
metal g i v i n g
can be r e l a t e d
a relationship
t o the
from which a
These models o f t e n use v a r i a b l e s
o f t h e model
which
are themselves
future
estimates.
'Time S e r i e s
trends,
price
cycles
series.
will
Analysis'
and random
noise
The a n a l y s i s
continue
to exist
characteristics
Geostatistical
that
they
that
extrapolate
have
identified
with
the same
exhibited
price
future
fall
and
prices.
then
stochastic
use
process
t h e model
Geostatistics
provides
the s t r u c t u r a l r e l a t i o n s h i p
s e r i e s and f o r a p p l y i n g
the model t o o p t i m i z e f o r e c a s t e d
to
a
of a price
prices
a v a r i e t y o f methods known as k r i g i n g .
Generally,
g e o s t a t i s t i c s i s used t o c a l c u l a t e o r e r e s e r v e s
i n mining a p p l i c a t i o n s ,
fields
In
within
t o metal p r i c e
mechanism f o r m o d e l l i n g
by
past.
analysis.
series
metal
general
i n the
forecasting
t o model the u n d e r l y i n g
the time
i n past
these same components
o f time s e r i e s a n a l y s i s a p p l i e d
attempt
created
commodity p r i c e s t o
components
assumes t h a t
methods o f metal
Most s t u d i e s
future
i n the f u t u r e
the c a t e g o r y o f time s e r i e s
forecasting
relates
though i t s usage i s expanding i n t o other
such as hydrology, geophysics, cartography and f o r e s t r y .
mining,
ore reserve
calculations
d i m e n s i o n a l , v o l u m e t r i c problem.
problem
i s reduced
eventually
will
be
t o one
known
precisely
two
or
three
In metal p r i c e f o r e c a s t i n g the
dimension
estimate.
are a
and
the future
f o r comparison
price
with
an
Data
copper,
presented
lead
Britain.
i n this
and z i n c
from
These p r i c e s
thesis
are h i s t o r i c a l
the London Metal
are d e f l a t e d
prices for
Exchange i n Great
by the wholesale,producer
p r i c e index f o r Great B r i t a i n and the r e s u l t i n g d e f l a t e d

form
the data
studies
base
have been made on copper,
platinum p r i c e s
prices
f o r the g e o s t a t i s t i c a l a n a l y s i s .
from
zinc,
Similar
silver,
g o l d and
from U n i t e d S t a t e s markets and s i l v e r
and g o l d
markets i n Great
lead,
prices
B r i t a i n , but a r e not i n c l u d e d i n
this thesis.
Comparisons
a r e made
between
g e o s t a t i s t i c a l l y predicted
p r i c e s , known p r i c e s and p r i c e s p r e d i c t e d
random walk procedure.
Although
results
and s u g g e s t i o n s
a r e encouraging
by a r e l a t i v e l y
simple
t h e r e a r e some problems,
are made
the
f o r further
work i n t h i s f i e l d .
Time and money c o n s t r a i n t s
study.
have l i m i t e d t h e scope
of t h i s
2.
LITERATURE SURVEY
The
future
ultimate
g o a l o f time
v a l u e s o f the time
series
series.
To
analysis
i s to
t h i s end
the a n a l y t i c a l
techniques
t r y t o model
the
time
model
the
The
a n a l y t i c a l techniques
the
into
structure
future.
series
and
forecast
extrapolate
this
investigate
o f a d i s c r e t e s e r i e s o f data observed
successively
l i t e r a t u r e survey
historically
i n time.
In
this
interwoven.
of
time
One
series
techniques
to
two
threads
are
t h r e a d being the development

analysis.
economic
The
time
o t h e r , the
series
and
o f the techniques
application
o f these
specifically
to
price
series.
2.1
Survey
Secular
earliest
time
trend
fitting
and
harmonic
forms o f time s e r i e s a n a l y s i s .
series
implies
characteristic
of
the
i g n o r e d (Snyder 1933,
the
secular
time
series
1940).
analysis
Fitting
trend
with
is
the
the
dominating
erratic
Harmonic a n a l y s i s
i n the time s e r i e s
harmonic
analysis
Beveridge's
(Schuster 1906).
economic
time
series
(1922)
analysis
of
indices
component
papers
by
o f a time
method, moving
Yule
(1921,
series.
average,
1926)
By
serial
4
correlation
variation
a p p l i c a t i o n of
of
wheat
to
investigated
applying
a strict
i s exemplified
f l u c t u a t i o n s i n Western Europe f o r the y e a r s 1545

Two
component
implies
The
to
a variate
and
the
a curve t o the
p e r i o d i c i t y expressed as a periodogram o f the c y c l i c a l

visible
are
by
price
1844.
the e r r a t i c
difference
correlograms
he
described
variables
random
series
(Davis 1941).
and
systematic theory
of
random
Most i m p o r t a n t l y he showed t h a t
linear
o p e r a t i o n s on random s e r i e s do not c r e a t e random s e r i e s .

Slutzky
(1936) proved t h a t
"The
summation o f random causes
generates a c y c l i c a l
s e r i e s which tends t o i m i t a t e f o r a number
of c y c l e s a harmonic
s e r i e s o f a r e l a t i v e l y s m a l l number o f s i n e
curves."
moving
In d e v e l o p i n g t h i s p r o o f he s o l i d i f i e d the concept o f
average
introduced
processes
g e n e r a t i n g time
i n Y u l e ' s papers
(Wold
1954;
series
Granger
that
and
was
Hatanaka
1964).
Yule
periodic
(1929) showed t h a t
movement.
He
random p u l s e s c r e a t e d
solved
second
a disturbed
degree
regression
e q u a t i o n f o r W o l f e r ' s sunspot numbers and proved i t was

harmonic
function.
The
investigation
introduced
a damped
the
r e g r e s s i v e p r o c e s s o f time s e r i e s g e n e r a t i o n (Wold 1954;

and Hatanaka
autoGranger
1964).
The work o f B a c h e l i e r
(1900) and Pearson
(1905,
1906)
were
the e a r l i e s t attempts at a p p l y i n g p r o b a b i l i t y t h e o r y t o the i d e a

of
a random walk
the
(Davis 1941;
Yaglom 1962).
1930's w i t h the work o f A.
that
rigourous p r o b a b i l i s t i c
were developed (Wold 1954;

concepts
of
random
N.
Kolmogorov and
theories
and
not
until
A. Khinchine
c o n c e r n i n g random
Yaglom 1962).
functions
I t was
series
From these s e r i e s the
stationarity
were
created
a l l o w i n g s t a t i s t i c a l i n f e r e n c e s t o be made.
Working
first
(1934) and
Jones
(1937) i n v e s t i g a t e d
d i f f e r e n c e s i n a n a l y z i n g economic
time s e r i e s .
the
use
The
of
former
author proposed the use o f a random-difference s e r i e s as a type

standard
as
the
basis
for statistical
5
tests
of
actual
time
series.
The l a t t e r author developed
a systematic a p p l i c a t i o n of
the t h e o r y o f runs whereby the s i g n s o f the f i r s t d i f f e r e n c e s o f

a time
s e r i e s would determine
random-difference
s e r i e s o r a s e r i e s t h a t p r e s e n t e d some type o f
internal structure.
to
indices
whether the s e r i e s was random, a
Cowles and Jones (1937) a p p l i e d t h i s theory
of industrial
stock
prices
and found
the s e r i e s
showed evidence o f s t r u c t u r e .
Wold
moving
(1954) made a comprehensive
average
series
study
and a u t o - r e g r e s s i v e
(Yaglom
1962).
Of
o f the use o f the
processes
specific
t o model
importance
development o f the decomposition
theorem, Theorem 7.
that
can be u n i q u e l y
the
any s t a t i o n a r y
process
sum o f two mutually
where D
i s linearly
average]
process.
indeterministic.
decomposition
The Y
component
(Granger
11
and Y
and
has the nature
was
"He proved
= D
i s a MA(CO)
i s said
Newbold
the
r e p r e s e n t e d as
uncorrelated processes
deterministic
time
+ Y
[moving
t o be
1986).
purely
"Wold's
o f an e x i s t e n c e theorem,
but as
soon as the d e t e r m i n i s t i c component and the c o e f f i c i e n t s o f the

moving
average
formula."
In
are s p e c i f i e d
linear
predictor
( W h i t t l e 1954).
t h e 1940's
series
extrapolation
and smoothing
and
Wiener
Norbert
f o r e c a s t i n g techniques
is
i t becomes
concerned
with
o f papers
o f time
provided
series
on
interpolation,
by A.N. Kolmogorov
the wherewithal
( W h i t t l e 1954).
to
"This p r e d i c t i o n
the problem o f p r e d i c t i n g
develop
theory
when the whole
r e a l i z a t i o n i s a v a i l a b l e by means o f a l i n e a r o p e r a t i o n and the

past
values."
(Hannan
1960).
T h e i r work p l u s
that of Harald
Cramer
also
provided
the
basis
f o r development
of
spectral
a n a l y s i s ( W h i t t l e 1954; Granger and Hatanaka 1964).

The
(1953)
Kendall
papers
s e t the
by
Working
(1934),
methodology
Jones
(1937)
f o r analyzing
price
(1953) found, by determining the s e r i a l
the f i r s t
d i f f e r e n c e s of i n d i c e s of i n d u s t r i a l
and
Kendall
time
series.
c o r r e l a t i o n of
share p r i c e s and
cash wheat and spot c o t t o n p r i c e s , t h a t "The data behaved almost

like
a wandering
series."
I t was
also
noted t h a t aggregated
index numbers behaved more s y s t e m a t i c a l l y than t h e i r

By d e t e r m i n i n g t h a t
series
were
hypotheses
the changes o r d i f f e r e n c e s
independent
of
random
components.
and
walk
identically
and
the
i n a price
distributed,
fair
game market
the
model
p o s t u l a t i n g t h a t the e x p e c t a t i o n o f the s p e c u l a t o r i s zero,

accepted ( B a c h e l i e r 1900).
Papers i n v e s t i g a t i n g p r i c e behaviour
showed mixed r e s u l t s w i t h r e s p e c t
model.
the random walk
Larson (1960) showed t h a t a low-weight moving
average
stochastic
futures
prices.
stating
"...in
a
random
process
Alexander
speculative
walk
tends t o p e r s i s t . "
trading
exhibiting
profits.
technique
based on
cotton
spot
g e n e r a t e d random
(1961)
markets
over time, but
changes
summarized
price
past
changes
a move,
i n corn
once
findings
appear
to
initiated,
He i n t r o d u c e d a f i l t e r i n g technique based on
mechanical
and
to accepting
Osborne (1959) demonstrated t h a t stock p r i c e s f o l l o w e d a
Brownian motion.
follow
was
rules
that
Houthakker
"stop o r d e r s "
prices
finding
exploited
(1961)
formed
f o r wheat
and
pattern
behaviour c o n t r a d i c t o r y t o a random walk.
this
of
movement,
a
filtering
cotton
futures
price
change
Yaglom
(1962) presented
an
s t a t i o n a r y random f u n c t i o n s . He
work and
and
one
random
of
the
Granger
comprehensive
a n a l y s i s as a p p l i c a b l e t o economic time
Granger
New
and
Morganstern
York s t o c k p r i c e
hypothesis
testing
of
that
distributed
price
series
successive
and
and
Hatanaka
accounts
of
independent,
fitted
the
data.
price
changes
used
serial
a n a l y s i s and f i l t e r i n g t e c h n i q u e s .
mixed
acceptance
e x i s t e n c e of p r o f i t a b i l i t y
of
of
spectral
analysis
were
(1965)
identically
correlation,
the
random
walk
behaviour.
model
r e s u l t e d i n the t h e o r e t i c a l
and
(1969) a p p l i e d s p e c t r a l
first
differences
of
the
Mandelbrot
analysis
to
1966).
the
g a i n o f zero
C a r g i l l and
first
the
positing
p r i c e behaviour where the expected g a i n i s dependent on the

(Samuelson 1965;
run
He concluded t h a t the random
s y s t e m a t i c p r i c e movements w i t h an expected
accepted
on
random walk
Fama
walk model seemed t o adequately d e s c r i b e stock p r i c e

The
(1964)
series.
showed t h a t the simple
stock
of
theoretical
(1963) u s i n g s p e c t r a l
behaviour
theory
the problems o f e x t r a p o l a t i n g
functions.
first
t o the
summarized p r e v i o u s
explained mathematically
filtering
gave
introduction
and
risk
Rausser
differences
and
logarithmic transformation of futures
c o n t r a c t p r i c e s f o r wheat, corn, oats and l i v e beef c a t t l e . They

accepted the random walk model as a s p e c i a l case of the g e n e r a l
s t o c h a s t i c m a r t i n g a l e model.
In t h i s g e n e r a l model the
expected
g a i n i s z e r o whether the p r i c e s behaved as a random walk o r w i t h

s y s t e m a t i c movements.
Why
the
type,
p r i c e s behave i n the ways suggested has been r e l a t e d t o

t i m i n g and
use
of
information.
Working presented
h y p o t h e s i s of market e x p e c t a t i o n (Working 1949)

8
and
a t h e o r y of
anticipatory
the
(Working
1958) based
random i n f l u e n c e o f i n f o r m a t i o n .
unlikely
that
all
prices
that
information
the c u r r e n t
systematic
traders
Fama
Smidt
had a random
He
also
aspects
(1968) f e l t
effect
p r i c e i n a competitive
a v a i l a b l e information.
participants
on these
i t was
on p r i c e s , but
market
proposed
should
that
reflect
uninformed
o r l a g s i n l e a r n i n g about new i n f o r m a t i o n
dependence
with
superior
i n prices
which
knowledge
t o earn
(1970) h y p o t h e s i z e d
an e f f i c i e n t
could
be
created
utilized
competitive
market
and
by
returns.
as "A market i n
which p r i c e s always ' f u l l y r e f l e c t ' a v a i l a b l e i n f o r m a t i o n
. . ."
return
process
model
of price
was
also
conditional
on
formation
specified
a
where
relevant
previous
price
plus
relevant
information
i n terms
o f an expected
" . . .
information
the expected
set."
t h e expected
s e t i s equal
return
price
t o the
c o n d i t i o n a l on t h e
There were t h r e e
information
sets
defined:
- weak form; h i s t o r i c a l p r i c e s e r i e s .
- semi-strong
form; h i s t o r i c a l p r i c e s e r i e s and p u b l i c
information.
- strong
form; h i s t o r i c a l
and m o n o p o l i s t i c
S p e c i a l cases
model,
the
buying
and
reformulated
public
information
access t o r e l e v a n t i n f o r m a t i o n .
o f the expected r e t u r n model were the random walk
the m a r t i n g a l e
expected
price series,
profits
holding
model,
and a sub-martingale
were not g r e a t e r
than
for a
time.
the e f f i c i e n t
respect
specific
market
efficient
with
to
impossible
t o make economic p r o f i t s
hypothesis
information
model where
those
r e c e i v e d by
Jensen
as
set I
(1978)
"A market i s
t
i f i tis
by t r a d i n g on the b a s i s o f
the
information set I
. . ."
Economic p r o f i t s meant the r i s k
a d j u s t e d r e t u r n s net o f a l l c o s t s .
Box and J e n k i n s (1976) addressed the problem o f f o r e c a s t i n g
time s e r i e s by d e v e l o p i n g an approach t o b u i l d i n g , i d e n t i f y i n g ,
fitting
mixed
and checking models o f time s e r i e s .

auto-regressive
and
moving
T h i s approach uses
average
processes
and
i n t e g r a t i o n t o model s t a t i o n a r y and n o n - s t a t i o n a r y time s e r i e s .

It
i s an
iterative
identified,
to
a p p r o a c h where
tentative
parameters o f t h i s model e s t i m a t e d
the data
and a p p l y i n g
from
model
is
fitting i t
the p r i n c i p l e o f parsimony and u s i n g
d i a g n o s t i c checks, t o t e s t the f i t o f the model t o the d a t a . The

model i s accepted i f no l a c k o f f i t i s i n d i c a t e d otherwise the
process i s repeated.
Labys
and
commodity
prices
w i t h commodity
the
random
walk
predictors
model
made
an
"statistical
empirical
and
compared
analysis,
econometric
and f o r e c a s t i n g . "
f i t a l l commodity
the
price
change
that
series.
methods
smoothing,
of
theory
They found
forecasting
exponential
study
of
Box-Jenkins
and some change, no change and average random walks.
random
soybean
joining
they
econometric
(1970)
p r i c e theory
Furthermore,
The
Granger
walk
and
methods
cottonseed
provided
the
better
o i l , soybean meal,
forecasts
for
soybeans, r y e and
wheat p r i c e s .
Stevenson
model
(1970) concluded
d i d not s a t i s f a c t o r i l y
prices.
Using
mechanical
and
and Bear
made
serial
trading
profits.
rules
explain
corn
correlations,
they
Labys,
that
and soybean
analysis
found s y s t e m a t i c
Rees
10
and
the random
Elliot
of
walk
futures
runs
and
p r i c e movements
(1970)
applied
spectral
analysis
t o the f i r s t
differences
o f cash and forward
copper p r i c e s and found t h a t the p r i c e s e r i e s f o l l o w e d

walk.
Mixed
r e s u l t s were
(1972) when they
encountered
investigated
l i v e beef c a t t l e ,
daily
copper, corn,
soybeans
and wheat.
function,
spectral
commodities they r e j e c t e d
the
f r o z e n pork b e l l i e s .
and
mechanical
oats,
rules
analysis
questioned
prices for
f r o z e n pork b e l l i e s , r y e ,
the
and i n t e g r a t e d
auto-correlation
periodogram
f o r the
the random walk model f o r copper and

Leuthold
(1972) used s p e c t r a l a n a l y s i s
r u l e s t o i n v e s t i g a t e whether t h e random
walk model a p p l i e d t o l i v e c a t t l e f u t u r e s p r i c e s .
spectral
and Rausser
closing futures
In c a l c u l a t i n g
density
trading
by C a r g i l l
a random
gave mixed
whether
results
accepting
He found t h a t
and a p p l y i n g
the random
the t r a d i n g
walk
p r e c l u d e d p r o f i t a b i l i t y as gross p r o f i t s were made.
hypothesis
C a r g i l l and
Rausser (1975) r e j e c t e d the random walk model o f p r i c e behaviour

for
corn,
bellies
oats,
futures,
efficient
wheat,
but concluded
market h y p o t h e s i s .
auto-correlation
integrated
frequency
(1975)
soybeans,
function
periodogram
domain
accepted
that
tests
from
and s p e c t r a l
o f time
live
this
cattle
and pork
d i d not r e j e c t the
They used the t h e o r y o f runs and
series
the random
walk
cocoa, c o f f e e , sugar, s i l v e r ,
using
copper,
the time
density
analysis.
model
domain
and the
function
o f the
Labys
f o r futures
and Thomas
prices of
copper, t i n , l e a d , z i n c and rubber
spectral analysis.
I t i s known t h a t p r i c e s and p r i c e d i f f e r e n c e s a r e o f t e n not
normally
Osborne
Fama
distributed
1959; Larson
1965; F i e l i t z
and
are non-stationary
1960; Houthakker
1971; Boness,
11
Chen
(Kendall
1953;
1961; Mandelbrot
1963;
and J a t u s i p i t a k
1974).
The
of
v a g a r i t i e s o f t h e acceptance o f the random walk h y p o t h e s i s

p r i c e behaviour have been a t t r i b u t e d t o a p p l y i n g
t e c h n i q u e s which r e q u i r e
analytical
normal d i s t r i b u t i o n s and no t r e n d s t o
these p r i c e s and p r i c e d i f f e r e n c e s (Mandelbrot 1963; C a r g i l l and

Rausser 1975).
that
V a g a r i t i e s have a l s o been a t t r i b u t e d t o t h e f a c t
mechanical
trading
rules
have
inherent
problems i n
i n t e r p r e t a t i o n o f the r e s u l t s ( C a r g i l l and Rausser 1975)

An
in
explanation
f o r the r e j e c t i o n o f the random walk model
some cases was d i s c o v e r e d
the
first
series
by Working
He found
order auto-correlation.
produced
a significant positive
Fama (1965) and Boness, Chen and
J a t u s i p i t a k (1974) suggested the departure from n o r m a l i t y

distribution
of prices
distributions.
logarithms
and p r i c e
o f the p r i c e
data.
that
differences
Granger
i n the variance
lognormal t r a n s f o r m a t i o n s
showed
differences
was due t o mixed
the natural
and Morganstern
(1963)
was o f no concern and t h a t
were not r e q u i r e d .
logarithms
Fielitz
of prices
described
(1974)
and
o f p r i c e s had t r e n d s i n mean and v a r i a n c e .
Mandelbrot (1963) f e l t t h a t the P a r e t i a n

best
i n the
To a l l e v i a t e these problems Osborne (1959) used
found t h a t t h e t r e n d
the
that
d i f f e r e n c e s o f a s e r i e s o f averages, even though the
may be a random c h a i n ,
first
(1960).
first
He and
family of d i s t r i b u t i o n s
t h e d i s t r i b u t i o n o f the f i r s t
d i f f e r e n c e s of
prices.
I t was determined by S o l t and Swanson (1981) t h a t t h e p r i c e
differences
Market
were
element.
on the London Gold Market

generated
from
normal
They found, by u s i n g
and the New York S i l v e r
d i s t r i b u t i o n s with
lognormal transformed data,
trend
that
the markets were not e f f i c i e n t , but t h e i n e f f i c i e n c i e s c o u l d not

12
be e x p l o i t e d
a
random
forprofit.
walk
behaviour.
model
Taylor
(1980,1982a,1982b,1985)
and a p r i c e
trend
hypothesis
The random walk model was d i s c o v e r e d
tested
of price
t o inadequately
describe
t h e p r o c e s s o f p r i c e f o r m a t i o n and t h e l a r g e number o f
positive
auto-correlation
prices.
He
hypothesis.
Bird
was
not able
to refute
trends
i n the
the e f f i c i e n t
market
Goss (1983) examined t h e semi-strong form and Peter
(1985)
futures
c o e f f i c i e n t s suggested
t h e weak
prices
form
f o r copper,
Metal Exchange.
inefficiencies
lead,
of daily
t i n and z i n c
from
cash and
t h e London
I n e f f i c i e n c i e s i n t h e market were found i n the
semi-strong and weak form sense.

Granger
series
and Newbold
analysis,
(1986)
forecasting
summarize
techniques
and e v a l u a t i o n
o f time
o f the f o r e c a s t s .
S p e c i f i c a l l y they develop time s e r i e s a n a l y s i s o f economic time

s e r i e s by m o d e l l i n g , f o r e c a s t i n g u s i n g
the
f o r e c a s t s and model.
2.2
Metal P r i c e Behaviour and P r e d i c t i o n

Investigations
behaviour
trend
o f metal
determination
metal
prices
oriented
and p r e d i c t i o n have been i n v o l v e d
Edwards (1976) d e r i v e d
and
a model and e v a l u a t i o n o f
and component
towards
price
predominantly
analysis.
Phillips
with
and
an i n v e r s e r e l a t i o n s h i p between o r e grade
p r i c e w i t h o r e grade f a l l i n g
over time.
Lee (1976)
showed t h a t i n terms o f r e a l o r constant p r i c e s , p r i c e t r e n d s i n

different
markets m a n i f e s t
Wood, Werner
and
converted
upward
and A z i s
(1977) u s i n g
London Metal
trending
curve
similar structural characteristics.

moving averages o f d e f l a t e d
Exchange p r i c e
f o r copper.
13
s e r i e s determined an
P e t e r s e n and Maxwell
(1979)
suggested a g e n e r a l
and
production
that
three
stable
an
were f o l l o w e d
Slade
of
s c a r c i t y and
resource
commodities.
reflected
were
p r i c e trends
rising.
relationships
natural
r e l a t i o n s h i p between m i n e r a l
with cost a c o n t r o l l i n g f a c t o r .
basic
and
inverse
She
i n concave q u a d r a t i c
e f f e c t of
the
They determined
over time
( 1982a, 1982b)
investment
of
real
and
investment
the
in
the
prices
increasing
p r i c e trends
timing
falling,
emphasized
with
found
prices
of
scarcity
c y c l e s seen
the
industry.
A l t e r n a t i v e l y Labys and A f r a s a b i (1983) suggested t h a t c y c l e s i n

the
United
States
copper
market
resulted
from
shifts
in
the
tried
in
demand f o r copper.
Different
methods
p r e d i c t i n g metal p r i c e s .
price
unit
of
a metal
cost
of
have
been
Etheridge
generally
production.
and
(1978) s t a t e d t h a t the
i s determined by
Therefore
marginal u n i t c o s t of p r o d u c t i o n
Krige
suggested
by
the
real
(1978) proposed t h a t the trends
marginal
determining
f u t u r e p r i c e s can be
the
Butler
i n the
i n r e a l p r i c e s and
(1978)
used
d e t e r m i n a t i o n s on
Real
copper
used
to
long term e s t i m a t i o n
price
generate
real
Fourier
of p r i c e s .
Analysis
and
i n the
differences
future
and
prices
the
in
O'Leary
Power
copper p r i c e s t o p r e d i c t
some
and
Spectrum
future
prices.
random
walk
model
study
done
by
be
drawn
the
real
projected.
r e l a t i v e p u r c h a s i n g powers o f d i f f e r e n t c u r r e n c i e s p r o v i d e d
objectivity
real
were
Rudenno
(1982).
2.3
Summary
A
number
literature
of
survey.
important
points
can
S i g n i f i c a n t t o the
14
from
this
a n a l y s i s of metal p r i c e
time s e r i e s i s the data s e t used and t h e requirement o f s p e c i f i c

conditions
from
that
these
allow s t a t i s t i c a l
statistical
inferences
inferences
that
t o be made.
the f o r e c a s t i n g
It i s
o f the
time s e r i e s can occur.

Assuming t h a t
at
specific
available
one
or
point
i n time
i s a historical
support i s necessary.
The
against
price
series.
information set
To be a b l e
to relate
This
i s e a s i l y a c h i e v e d by d e f l a t i n g
p r i c e s i n the s e r i e s t o c o n s t a n t o r r e a l p r i c e s .
random
walk o f p r i c e
behaviour
provides
a hypothesis
which the behaviour o f commodity p r i c e s i n a time s e r i e s
testable.
price
series
Alternatively,
can be used
better
future
to test
methods t o f o r e c a s t p r i c e s .
are
the simplest
information
p r i c e t o another i n the same s e r i e s a common base, r e f e r e n c e
the c u r r e n t
is
the p r i c e r e f l e c t s a l l a v a i l a b l e
prices
o f a random
the a b i l i t y
of different
The t e s t i s whether these
o r worse e s t i m a t e s o f f u t u r e
prices
walk
forecasts
than t h e random
walk.
Looking
stochastic
inferences
at the price
process
time
series
i t i s necessary
concerning that
process.
as
t o make
result
some
The c o n d i t i o n s
of a
statistical
which allow
the
inferences
a r e r e l a t e d t o t h e d i s t r i b u t i o n o f the p r i c e data
and
t r e n d s o r l a c k o f t r e n d s i n t h e mean and/or v a r i a n c e o f the
data.
15
3.
THEORY OF REGIONALIZED
The
Theory
Matheron
grades
of
VARIABLES
Regionalized Variables,
(1963,1971) t o account
in a
relation
mineral
that
grades
was
f o r the s p a t i a l
deposit.
This
o f samples
theory
taken c l o s e
s i m i l a r than are those taken f u r t h e r a p a r t .
developed
by
c o r r e l a t i o n of
quantifies
the
t o g e t h e r are more
T h e r e f o r e , a grade
at a p o i n t i n space i s a f u n c t i o n o f the grades o f o t h e r p o i n t s

nearby.
three
By s u b s t i t u t i n g p r i c e f o r grade and a time s e r i e s f o r a

dimensional
discrete
deposit,
metal
prices
defined
at
p o i n t s i n time can be c o n s i d e r e d as a one dimensional
regionalized
series
mineral
variable
o f average
can be thought
(Journel
metal
prices
and H u i j b r e g t s 1978).
over
a specified
The
time
time
interval
o f as a r e a l i z a t i o n o f a one-dimensional
random
function.
3.1
Theory o f Random F u n c t i o n s
A
random
variable
i s a quantity
n u m e r i c a l v a l u e f o r each
on
the p r o b a b i l i t y
specific
numerical
realization
variables
realizations
be
of
different
r e p e t i t i o n o f an experiment
dependent
value
o f the random
can
distribution
can
be
variable.
considered
random
of
takes
t h e random
variable.
considered
as
Because
random
variables
r e a l i z a t i o n o f the random f u n c t i o n
which
can
(Yaglom
single
a s e t o f random
function,
be
set of
considered
as
1962; Matheron 1971;
J o u r n e l and H u i j b r e g t s 1978).
To assume t h a t
of
random
a s e t o f numerical v a l u e s i s a r e a l i z a t i o n
function
requires
16
that
a l l or
part
of
the
p r o b a b i l i t y law d e f i n i n g the random f u n c t i o n be i n f e r r e d .

it
i s difficult
to infer
the p r o b a b i l i t y
law o f a
Since
random
f u n c t i o n from a s i n g l e r e a l i z a t i o n l i m i t e d t o a f i n i t e number o f
points
some
assumptions
stationarity
statistical
or
must
be made,
the i n t r i n s i c
inferences
such
hypothesis
can be made.
as
second-order
i n order
that
I t i s w i t h one o r more o f
these assumptions t h a t the random and s t r u c t u r a l c h a r a c t e r i s t i c s

o f a r e g i o n a l i z e d v a r i a b l e can be determined and e s t i m a t e s with
e r r o r s made.
3.1.1
Realizations
In
theory
many
realizations
required
before
applying
the appropriate
series,
be
any s t a t i s t i c a l
each p a i r o f p r i c e s
considered
Therefore,
only
of a
random
inferences
hypothesis
price
as one r e a l i z a t i o n o f t h e random
time
function.
a s i n g l e metal p r i c e time s e r i e s o f t h e random

inferences.
Stationarity
finite-dimensional
be c a l l e d s t a t i o n a r y i f a l l
d i s t r i b u t i o n functions
(1.3) d e f i n i n g
(t)
remain t h e same i f t h e whole group o f p o i n t s t , t
is
shifted
stationarity
strong
is
By
f o r d i f f e r e n t time s e p a r a t i o n s can
"The random f u n c t i o n ; ( t ) w i l l
the
can be made.
t o a metal
f u n c t i o n i s r e q u i r e d t o make any s t a t i s t i c a l
3.1.2
f u n c t i o n are
along
t h e time
i n the strong
axis
sense.
..." (Yaglom
t o work
with
t h e weaker
1986).
17
1962).
This i s
"In p r a c t i c a l a p p l i c a t i o n s
s t a t i o n a r i t y i s v i r t u a l l y impossible
usual
form."
t o t e s t f o r , and i t
(Granger
and Newbold
Second-order
sense,
Yaglom
stationarity,
i s defined
for a
time
or s t a t i o n a r i t y
series
i n t h e weak
as f o l l o w s
(Wold
1954;
1962).
1. The mean v a l u e o f the r e a l i z a t i o n o f
t h e random f u n c t i o n
e x i s t s and i s c o n s t a n t over the metal p r i c e time s e r i e s

and i s independent o f any p o i n t i n time.
2. The c o v a r i a n c e o f the r e a l i z a t i o n o f the random f u n c t i o n
e x i s t s and depends o n l y on the time s e p a r a t i n g any two
p r i c e s o f a metal.
The s t a t i o n a r i t y o f t h e c o v a r i a n c e
i m p l i e s t h e v a r i a n c e o f the metal p r i c e s e r i e s e x i s t s and

i s s t a t i o n a r y and f i n i t e .
3.1.3
I n t r i n s i c Hypothesis
The
intrinsic
hypothesis
allows
c o n d i t i o n s o f second-order s t a t i o n a r i t y .
realization
infinitely
for
is
o f t h e random
function
weakening
of the
I f t h e v a r i a n c e o f the
does
not e x i s t
or i s
i n c r e a s i n g t h e v a r i a n c e o f a s e t o f metal p r i c e p a i r s
each time s e p a r a t i o n may be f i n i t e .

defined
as f o l l o w s
(Matheron
The i n t r i n s i c
1971; David
hypothesis
1977; J o u r n e l and
H u i j b r e g t s C. J . , 1978).
1. The mean v a l u e o f the r e a l i z a t i o n o f t h e random f u n c t i o n
e x i s t s and i s independent o f any p o i n t i n time, but
i s dependent
on t h e time s e p a r a t i o n .
2. The semi-variogram e x i s t s and i s o n l y dependent
on t h e
s e p a r a t i o n o f metal p r i c e s i n time.
The
drift
conditions of the i n t r i n s i c
i n t h e mean and v a r i a n c e .
18
hypothesis allow a l i n e a r
A linear
drift
i s permitted
because t h e mean and semi-variogram
are a f u n c t i o n o f t h e time
s e p a r a t i o n and not o f any s p e c i f i c p o i n t i n time.

If
these
applies,
exist
then
but the h y p o t h e s i s o f second-order
If
not.
conditions
t h e h y p o t h e s i s o f second-order
hypothesis
stationarity
stationarity
does
exists,
then both hypotheses apply.
3.1.4.
Q u a s i - s t a t i o n a r i t y and Q u a s i - i n t r i n s i c Hypothesis
Quasi-stationarity
h y p o t h e s i z e s second-order
over a l i m i t e d time i n t e r v a l
assumes t h e i n t r i n s i c
time.
stationarity
and t h e q u a s i - i n t r i n s i c h y p o t h e s i s
hypothesis applies
T h i s can be i n t e r p r e t e d
o n l y over
as second-order
specific
s t a t i o n a r i t y or
the i n t r i n s i c h y p o t h e s i s a p p l y i n g o n l y l o c a l l y over l i m i t e d time

s e p a r a t i o n s which can be e s t i m a t e d from t h e semi-variogram.
3.2
Semi-variogram
The
semi-variogram
i s t h e mean squared d i f f e r e n c e i n metal
p r i c e f o r v a r i o u s time s e p a r a t i o n s ( l a g s ) o f t h e p r i c e s .
For a
metal p r i c e time s e r i e s o f annual average p r i c e s an experimental

semi-variogram i s d e f i n e d as f o l l o w s :
N(t)
[ P ( x ) - P(x.
A
2 N(t)
where; X ( t )
) ]
f o r t = 1,...,n.
i =l
the semi-variogram
f u n c t i o n o f time
separation t .
N(t)
the number o f p a i r s o f p r i c e s s e p a r a t e d by
time t .
P(x )
the p r i c e a t time x .
19
( i
+ t )
t
A
"*- P
he
r i
c e a t time (x
plus t ) .
= the time s e p a r a t i o n o r
plot
of
the
experimental
lag'.
semi-variogram
function
g e n e r a l l y produces a more-or-less sawtooth curve w i t h a d i s t i n c t

'general
pattern'.
This general pattern
i s assumed t o be the
u n d e r l y i n g semi-variogram and i s f i t t e d by a mathematical model.

The
sawtooth
sampling
3.2.1
c h a r a c t e r about
the model
i s assumed
t o be the
error.
P r o p e r t i e s o f the Semi-variogram
There
are f o u r p r o p e r t i e s o f the semi-variogram:
behaviour
near t h e o r i g i n , symmetry around the y a x i s , range o f c o n t i n u i t y

and p o s i t i v e
definiteness.
The behaviour o f the semi-variogram near the o r i g i n

to
the c o n t i n u i t y
prices.
and
Parabolic
highly
implies
time.
and r e g u l a r i t y
continuous
o f the v a r i a n c e o f the metal
behaviour i s c h a r a c t e r i s t i c
regular
variability
and average
relates
over
time.
regularity
o f a continuous
Linear
behaviour
in variability
over
D i s c o n t i n u o u s behaviour d e s c r i b e s a l a c k o f c o n t i n u i t y or
regularity
period.
effect'
in variability
This
and
latter
this
f o r time
type
value
separations less
o f behaviour
i s equal
to
i s called
the
than
the
one
'nugget
experimental
semi-
variogram f u n c t i o n a t time s e p a r a t i o n 0.
The
levelling
'range'
i s the
time
interval
o f t h e semi-variogram
function.
corresponding
to
I f t h e v a r i a n c e of
the random f u n c t i o n e x i s t s the c o v a r i a n c e then a l s o e x i s t s . The

semi-variogram
and the a u t o - c o v a r i a n c e f u n c t i o n s are r e l a t e d by
the e q u a t i o n :
20
C(t)
= C(0) - X ( t )
where;
for t =
l,...,n.
C(t) = auto-covariance function
at time
separation t.
C(0)
at time
separation 0
= auto-covariance function
which i s the variance of the prices
i n the
time
series.
/(t)
The
positive
= semi-variogram
semi-variogram
function
and
at time
separation t .
auto-covariance
functions
are
definitei f ;
- the hypothesis of second-order

quasi-stationarity
applies.
- the variance of the
'sill'
positive
to
and f i n i t e
'sill'
stationarity or
of the semi-variogram
or at the
'range'
i s
of the transition
the auto-covariance i s zero or positive
and
finite.
The
semi-variogram
function
i s a conditional
positive
definite
function i f ;
- the i n t r i n s i c
hypothesis
- at time
If
definite
more
If
the
applies.
separation 0 the auto-covariance function
not
equal
but
the variance i s positive
or zero.
semi-variogram
i s conditionally
the
the variance of the prices
i t s behaviour
slowly
at i n f i n i t y
the semi-variogram
time
hypothesis or quasi-intrinsic
at
function
infinity
than
function
s e p a r a t i o n squared
incompatible
does
i s such
the squared
that
time
hypothesis.
21
series,
positive
i t increases
time separations.
increases at least
f o r large
with the i n t r i n s i c
i n a time
does
as r a p i d l y
separations
Therefore
as
i t i s
there i s
trend
or a d r i f t
i n the mean,
v a r i a n c e , semi-variogram
or
a u t o - c o v a r i a n c e ( J o u r n e l and H u i j b r e g t s 1978).
3.3
Semi-variogram
If
t h e h y p o t h e s i s o f second-order
stationarity
increases
'sill'.
the
Models
i s satisfied,
continuously with
F o r second-order
t h e model
some
stationarity
of the
degree
stationarity
or quasi-
semi-variogram
of regularity
the ' s i l l '
to a
i s equal t o
v a r i a n c e o f the metal p r i c e s minus the 'nugget e f f e c t ' .
quasi-stationarity
the ' s i l l '
i s equal
to a positive,
For
finite
v a r i a n c e minus the 'nugget e f f e c t ' . The time s e p a r a t i o n o r ' l a g '

at
which
'sill'
the
the i n c r e a s i n g
semi-variogram
i s known as the 'range'.
model
i s constant
function
i n t e r s e c t s the
From t h i s p o i n t o f i n t e r s e c t i o n
and e q u a l s
the ' s i l l '
and t h e auto-
c o v a r i a n c e i s g r e a t e r than o r equal t o z e r o .
If
only
satisfied
positive
size
and t h e s e m i - v a r i o g r a m
definite,
o f the time
metal
prices
point
or q u a s i - i n t r i n s i c
the model w i l l
separation
i s dependent
i n time.
function
increases.
no
i s conditionally
continuously increase
on the time
Therefore
hypothesis i s
as the
The v a r i a n c e o f the
separation
'sill'
exists
and not any
i n the
semi-
reaching a
'sill'
characterized
by a
variogram.
3.3.1
S p h e r i c a l Model
Under t h e c o n d i t i o n s o f a semi-variogram
the
behaviour
of
the function
' s p h e r i c a l model' (FIGURE 1 ) .
22
c a n be
r(t>
3 t
Co
for
t < a,
2 a
=
C + Co
where; Y(t)
C
f o r t > a.
= the semi-variogram f u n c t i o n a t time s e p a r a t i o n t .

= the ' s i l l ' ,
the
a p o s i t i v e variance or variance of
metal p r i c e s minus the 'nugget e f f e c t ' ,
= the 'range' o f c o n t i n u i t y and r e g u l a r i t y , the

'lag'
a t which the semi-variogram reaches a
'sill' .
t
= the time s e p a r a t i o n o r ' l a g ' .
Co
= the 'nugget e f f e c t ' whose v a l u e i s equal t o the

semi-variogram f u n c t i o n a t ' l a g ' 0.
3.3.2
L i n e a r Model
In
the event the semi-variogram does not r e a c h a " s i l l ' and
no t r e n d o r d r i f t
i s apparent the behaviour o f the metal
prices
can be c h a r a c t e r i z e d by a ' l i n e a r model' (FIGURE 2 ) .

X(t)
= m t
where; Y(t)
+ Co
= the semi-variogram f u n c t i o n a t time s e p a r a t i o n
t.
= the s l o p e o f the l i n e through the p o i n t s o f the

semi-variogram.
= time s e p a r a t i o n o r ' l a g ' .
Co
= 'nugget e f f e c t ' whose v a l u e i s equal t o the

semi-variogram f u n c t i o n a t ' l a g ' 0.
23
THEORETICAL SPHERICAL S E M I - V A R I O G R A M
FIGURE 1.
Theoretical SPHERICAL semi-variogram with a SILL (C) = 9.0 (Price) ,

a NUGGET EFFECT (Co) = 1.0 (Price)', and a RANGE (a) = 6.0 years.
1
T H E O R E T I C A L LINEAR
Lagiyears
SEMI-VARIOGRAM
Slope
ririlPT
R
"1
i i i i i i . i.
3
4
S
c
7
10
Log.yeors
Z.
IVJUKL
Theoretical LINEAR semi-variogram with a NUGGET EFFECT (Co) = 1.0 (Price) ,

and a SLOPE = 1.5 (Price)'/Year.
PURE N U G G E T E F F E C T S E M I - V A R I O G R A M
1
Experimental Semi-variogram
Population Variance
a.
~
FIGURE 3.
Lagiyaart
PURE NUGGET EFFECT semi-variogram represented by a horizontal line equal

to the population variance of the metal prices.
24
10
3.3.3
Pure Nugget E f f e c t
I f t h e semi-variogram reaches a ' s i l l '
the
in
a t l e s s than one l a g
'nugget e f f e c t ' i s equal t o the v a r i a n c e o f the metal

a
time
series.
This
price
behaviour
is a
'Pure
prices
Nugget
(FIGURE 3 ) .
Effect'
7 ( t ) = Co
f o r a l l t = 1, . . . ,n.
where; X ( t )
= the semi-variogram f u n c t i o n a t time s e p a r a t i o n

t.
Co
= the 'nugget e f f e c t ' whose v a l u e i s equal t o the

v a r i a n c e o f the metal p r i c e s ,
= the time s e p a r a t i o n o r ' l a g ' .
T h i s model i m p l i e s an absence o f c o r r e l a t i o n between p r i c e s

for
a l l available
time
separations.
c o r r e l a t i o n i n d i c a t e s the independence
of
the metal
prices
Therefore i n t h i s
with
respect
Further,
the lack
of
o f the mean and v a r i a n c e
t o t h e time s e p a r a t i o n s .
case, the b e s t estimate o f a f u t u r e p r i c e i s
the mean o f the metal p r i c e s .
3.4
Kriging
Kriging
unbiased
of
is a
technique
used
to find
estimate of a r e g i o n a l i z e d v a r i a b l e
a metal
at a point
e s t i m a t e the k r i g i n g
estimation
linear
such as the p r i c e
i n time u s i n g the temporal
nearby known p o i n t s i n time and t h e i r p r i c e s .

linear
the best
selection of
To make the best
e s t i m a t o r must be unbiased and the
v a r i a n c e minimized.
Both
conditions
a r e achieved
through t h e assignment o f a w e i g h t i n g f a c t o r t o each known p r i c e

used
i n the k r i g i n g
related
t o t h e time
neighbourhood.
separation
25
The w e i g h t i n g f a c t o r s are
o f each
known
price
i n the
neighbourhood
with
the point
i n time
being
kriged.
The
behaviour o f the p r i c e s as a f u n c t i o n o f time i s d e f i n e d by the

model
of the experimental
semi-variogram
o f the metal
price
series.
3.4.1
Kriging
The
Estimator
k r i g i n g estimator
i s a l i n e a r f u n c t i o n o f the p r i c e s i n
a time s e r i e s r e p r e s e n t i n g
n
the k r i g i n g neighbourhood.
P(x )
i=l
where; Z*
= the k r i g i n g e s t i m a t o r
f o r point x
i n time
being
kriged.
n
= the number o f p r i c e s i n the k r i g i n g

neighbourhood.
= the w e i g h t i n g f a c t o r a p p l i e d t o p r i c e x .
P(x )
= the p r i c e a t time ( x ) i n the k r i g i n g
neighbourhood.
The
kriging
variogram,
neighbourhood
but a l s o
i s defined
somewhat
i n part
arbitrarily
by
the
t o provide
semisound
basis f o r estimation.
The
condition
o f unbiasedness
p r i c e on average should
i n time.
implies
that
the estimated
be equal t o t h e t r u e p r i c e f o r a p o i n t
The c o n d i t i o n o f no b i a s i s achieved
sum o f t h e w e i g h t i n g f a c t o r s t o be equal t o 1.
26
by r e q u i r i n g the
3.4.2
Ordinary Kriging
To minimize
are
chosen
variance
the e s t i m a t i o n v a r i a n c e the w e i g h t i n g
subject
t o the unbiased c o n d i t i o n .
equations
equations,
the
can
be
ordinary
written
kriging
as
system
The e s t i m a t i o n
system
o r OK,
factors
of
linear
incorporating
Lagrangian m u l t i p l i e r r e l a t e d t o the unbiasedness c o n d i t i o n t h a t

a l l weights sum
to 1 .
]T
J
Xi
y ( P (
) ; P (
) )
= y ( P ( x );P(x ))
+ fi
for i =
where; X
n.
= the w e i g h t i n g f a c t o r f o r the p r i c e a t time x .
Y(
1,.
= the semi-variogram f u n c t i o n which models the

experimental semi-variogram o f the p r i c e s i n
a time s e r i e s .
(P(
);P(
)) = two p r i c e s s e p a r a t e d by time p e r i o d t
d e f i n e d by times x , . , and x ; i e .
X^
H-
Xj
Xj
"t
= the Lagrangian m u l t i p l i e r used t o induce

unbiasedness.
= the number of p r i c e s i n the k r i g i n g

neighbourhood.
In m a t r i x n o t a t i o n
the o r d i n a r y k r i g i n g
as [ A ] [ B ] = [ C ] .
27
system
i s defined
X ( P ( x );P(Xj ) )
= [ A ]
f o r i = 1, . . ., n.
3=1
y(P(
[A] =
);P(
X l
)) . . . / ( P (
X l
);P(x ))
X l
7(P(x ) ; P (
n
X l
Aj
)) . . . T ( P ( x );P(x ))
n
]T
. . .
y(P(x
+^t = [ B ] and
);P(x ))
+ 1 = [ C ]
3=1
for
[ B ] =
[ C ] =
1,
7(P(
X l
?(P(x
n.
);P(x ))
k
);P(x ))
k
3.4.3
Universal
To
Kriging
accommodate
drift
i n a variable,
must be i n c o r p o r a t e d i n t o the k r i g i n g
known as the u n i v e r s a l
drift
o f o r d e r m the k r i g i n g
related
t o the number
plus
equations
using
kriging
Lagrangian
polynomial
multipliers.
m
system
of prices
describing
of order
system
additional
system
o f n equations
drift
neighbourhood
of order
i s assumed i n t h a t
t o the p r i c e
series.
e q u a t i o n s are r e l a t e d t o the t h e o r e t i c a l semi-variogram

28
what i s
For a polynomial
i s comprised
The d r i f t
i s fitted
t o produce
o r UK.
the polynomial
equations
The n
function
modelling
the
the experimental
drift.
prices
The
fitted
residuals
o f the r e s i d u a l s
are the r e s u l t
u s i n g the polynomial
known p r i c e s .
condition
semi-variogram
curve
of subtracting
o f degree
of
the
n from the
The Lagrangian m u l t i p l i e r r e l a t e d t o the unbiased
that
a l l weights
sum
to 1
also
i s included.
The
u n i v e r s a l k r i g i n g system i s :
n
]T
y ( P ( x );P(x. ))
+ fjL +
Y,
j=l
1=1 j = l
m
y ( P ( x . );P(x )) + 1 + Y
<k y
x
1=1
for
i = 1, . . ., n.
where the a d d i t i o n a l components a r e :

= Lagrangian m u l t i p l i e r s f o r the p o l y n o m i a l
fJL
o f degree m where 1 = 0 ,
(x.. J
(x )
= time
. . ., m.
t o the power 1.
X;j
= time x
drift
t o the power 1.
= the power o f the polynomial o f degree m w i t h a

range o f 0, . . ., m.
In m a t r i x n o t a t i o n
t h i s u n i v e r s a l k r i g i n g system
as [ A ] [ B ] = [ C ] where:
n
^
);P(x.
1 + y
y(P
p ( x.. )
; p ( . )))
) + i
X
V
"
j=l
1=0 j = l
for
i = 1, . . ., n.
29
X j
= [ A ]
i s defined
[A] =
y(P(x
X(P(x
);P(x )) ...
y (p(
);P(x ))
(x^
);P(
y ( P ( x );P(x ))
(x^
X l
)) ...
1
(x^
X l
...
...
(x )
( x )"
x
Xj
j=l
... (
...
m
]T
/xl = [ B ] : y ( P ( x );P(x )) + 1 +
1=0
= [C]
1=1
f o r i= 1,
[ B ] =
X l
[ C ] =
yCP^
. . ., n.
);P(x ))
k
y ( P ( x );P(x ))
n
To
use
universal
system i s s h i f t e d
in
[C] then
kriging
t o the time
i s zero.
The
r e f e r e n c e d t o the o r i g i n
3.4.4
the
origin
of
being k r i g e d .
coordinates x
to x
the
The
n
coordinate
coordinate
i n [A] are
x .
k
[ C ] are known the s o l u t i o n f o r [ B ] i s
3 0
then
M a t r i x S o l u t i o n and E s t i m a t i o n V a r i a n c e
S i n c e [ A ] and
[ B ]
= [ A ]
vector
[ B
unbiasedness,
[ C ].
The w e i g h t i n g f a c t o r s
a r e chosen
optimally
due
., X
in
t o the condition
of
m i n i m i z a t i o n o f the e s t i m a t i o n v a r i a n c e and the
semi-variogram
function
modelling
the behaviour
v a r i a b l e such as p r i c e s i n a metal p r i c e time
o f the known
series.
The v a r i a n c e o f e s t i m a t i o n can be found by s u b s t i t u t i n g the

d e r i v e d v a l u e s i n t o the e q u a t i o n s :
- Ordinary Kriging
n
E V x
= " 7(P(x );P(x )) + Y,
i r(P(x
);P(x )) + p
k
i =l
- Universal
Kriging
n
vx
where:
=<x\
EVx
Y,
j=i
m
x
);p(x ))
k
Y
1=1
/MV)
= t h e v a r i a n c e o f e s t i m a t i o n o f the p o i n t
time.
31
in
4.
DATA AND METHODOLOGY
Data used i n t h e a n a l y s i s o f metal p r i c e behaviour and the

forecasting
series
the
of future
and d e f l a t o r s
metals
average
metal p r i c e s c o n s i s t s o f metal p r i c e
from Great B r i t a i n .
investigated
prices
are annual
f o r copper,
lead
average
and z i n c
Exchange f o r t h e y e a r s 1884 t o 1986.

index
i s used
to deflate
The time
time
s e r i e s and
prices
o f monthly
from t h e London Metal
A wholesale,producer p r i c e
the current
metals
price
series to
constant or r e a l p r i c e s e r i e s .
The methodology f o l l o w e d
price
time
prices.
each
series
was t o d e f l a t e
k r i g i n g o f each metal
current
prices
t o constant
Then an experimental semi-variogram was c a l c u l a t e d
c o n s t a n t metal
prices
variogram d i d n o t e x h i b i t
semi-variogram
structural
function
compared
series.
I f the experimental
semi-
a "Pure Nugget E f f e c t " a t h e o r e t i c a l
was f i t t e d .
fitted
model
indicated
to deflated
future
prices.
known p r i c e s
a simple random walk.
These
f u t u r e p r i c e s were
and f u t u r e
For u n i v e r s a l
prices
predicted
k r i g i n g a polynomial
curve was f i t t e d t o t h e each o f the c o n s t a n t p r i c e s e r i e s .

a
from
c o r r e l a t i o n between p r i c e s i n the time s e r i e s and i t
then was used t o k r i g e
from
f o r ordinary
experimental
semi-variogram
was c a l c u l a t e d
f o r each
Then
o f the
r e s i d u a l p r i c e s e r i e s (known p r i c e minus curve f i t t e d p r i c e ) and

the p r o c e s s c o n t i n u e d as f o r o r d i n a r y
4.1
kriging.
Data
Metal
market
prices
i n Great
Britain
p r e s s u r e s , but pressures
32
have
related
undergone
not only
t o devaluation
and
r e s t r u c t u r i n g o f t h e pound s t e r l i n g
measurements and metal grades.
and changes
i n the u n i t s o f
The pound s t e r l i n g was devalued
i n 1931, 1949 and 1967 and i n 1972 was r e s t r u c t u r e d so t h a t 100

new pence made a pound v e r s u s 240 o l d pence i n a pound.
I n 1970
p r i c e s quoted f o r copper, l e a d and z i n c were changed from pounds

sterling
lbs.
of
p e r long
t o n t o pounds s t e r l i n g
per metric
p e r l o n g t o n and 2204.6 l b s p e r m e t r i c t o n ) .
current
prices
reflect
this
adjustment
t o n (2240
The data s e t
and a r e quoted i n
pounds s t e r l i n g p e r m e t r i c t o n .
The
grades o f t h e metals f o r which
the
London Metal Exchange have changed
and
supplies.
prices
were quoted on
due t o v a r y i n g
demands
- Copper: 1884 t o 1888, C h i l e bars, spot q u o t a t i o n .

: 1888 t o 1902, Good Merchantable Brands, a t l e a s t
94% copper.
: 1902 t o 1940, Standard Copper, rough copper
a s s a y i n g 99%.
: 1940 t o 1953, E l e c t r o l y t i c Copper, M i n i s t r y o f
Supply maximum p r i c e .
: 1953 t o 1962, Standard Copper, e l e c t r o l y t i c wire
bar,
monthly average s e t t l e m e n t
p r i c e s asked q u o t a t i o n f o r spot
copper.
: 1962 to 1986,
Lead
E l e c t r o l y t i c Wire Bar.
: 1884 to 1940, Good S o f t P i g Lead, spot q u o t a t i o n

: 1940 t o
1953,
S o f t F o r e i g n Lead, M i n i s t r y o f
Supply , maximum p r i c e .
: 1953 to 1961,
R e f i n e d P i g Lead, a s s a y i n g 99.97%.
: 1961 t o 1986, spot asked cash q u o t a t i o n .

- Zinc
: 1884 t o 1940, Good O r d i n a r y Brands, a s s a y i n g 98%,

spot q u o t a t i o n V i r g i n
zinc.
: 1940 t o 1953, M i n i s t r y o f Supply maximum p r i c e .

: 1953 t o 1961, V i r g i n z i n c , a s s a y i n g 98% z i n c .
: 1963 t o 1986, spot q u o t a t i o n .
Sources : American Bureau o f Metal S t a t i s t i c s ,
Yearbooks.
See APPENDIX 1 TABLE 1. C u r r e n t Metal P r i c e s .

For
Great B r i t a i n
the d e f l a t o r used on an annual b a s i s i s
an average o f monthly averages.

for
the period
1884
to
commodities
index.
for
manufactured
output
The wholesale p r i c e s index used
1954
i s the Board
In 1954 t h i s
index was s p l i t
goods,
m a t e r i a l s and f u e l s purchased.
of
home
sales
Trade a l l
into
an index
and an index f o r
For the p e r i o d
1954 t o 1986 on
an annual b a s i s t h e wholesale o r producer p r i c e index f o r output

of manufactured goods, home s a l e s was used as the d e f l a t o r .
Sources : M i t c h e l l B. R., 1980.
: C e n t r a l S t a t i s t i c a l O f f i c e ; Annual A b s t r a c t o f
Statistics.
See APPENDIX 1 TABLE 1. Wholesale,Producer P r i c e
4.2
Methodology
The
to
same methods were used t o analyze p r i c e behaviour and
predict
prices
f o r each
c o n s i s t e d o f FORTRAN
to
and
Index.
deflate
price
to krige
University
of B r i t i s h
and
time
series.
They
IV computer programs w r i t t e n by the author
data,
future
metal
calculate
prices.
Columbia's
experimental
The k r i g i n g
Computing
semi-variograms
programs
used the
Centre's s u b r o u t i n e
FSLE t o s o l v e
universal
price
a system o f l i n e a r equations i n m a t r i x form.
kriging
series
t h e assumed
using ordinary
from t h e Computing Centre.

variograms
product,
was
Columbia's
was f i t t e d
t o t h e metals
l e a s t squares, t h e OLSF s u b r o u t i n e
P l o t t i n g o f t h e p r i c e data and semi-
by t h e l i c e n s e d
and used
computations
drift
program
TELLAGRAF,
an ISSCO
the Computing Centre's QMSPLOT r o u t i n e .
were
performed
on
the U n i v e r s i t y
of
Amdahl V8 computer.
were d e f l a t e d t o c o n s t a n t 1984 p r i c e s .
= Px
where; D P
Px
Dx
All
British
U s i n g the wholesale,producer p r i c e index a l l annual
DPx
For
Xi
/ ( Dx
/ 100.00 )
The e q u a t i o n used was:
f o r i = 1, . . .,n.
= t h e d e f l a t e d o r c o n s t a n t p r i c e f o r time
= the c u r r e n t
= t h e d e f l a t o r f o r time
prices
X i
p r i c e f o r time x .
X i
u s i n g as a b a s i s
1984 =
100.
n
The
in
= t h e number o f p r i c e s i n t h e time s e r i e s .
current
p r i c e s were d e f l a t e d
t h e "worth"
t o account f o r the v a r i a b i l i t y
o f t h e pound s t e r l i n g
from y e a r t o y e a r .
d e f l a t i o n p r o v i d e s a c o n s t a n t support over t h e study

An
experimental
semi-variogram
was
This
period.
calculated
f o r each
metal f o r d e f l a t e d
time s e r i e s and the r e s i d u a l s
polynomial curve.
The metal p r i c e time s e r i e s used were: annual
deflated
copper,
lead
and z i n c
prices
from f i t t i n g a
f o r 1884 t o 1986.
The
e x p e r i m e n t a l semi-variogram f o r each p r i c e s e r i e s was p l o t t e d by

hand and i f a "Pure Nugget E f f e c t " was not e x h i b i t e d
or
linear
From
these
theoretical
models
'range' and/or
semi-variogram
t h e parameters
'slope'
were taken.
of
a spherical
function
visually
fitted.
'nugget
effect',
'sill',
Two
kriging
comparison
with
methods
were
used
estimates
from
to
simple
estimate
random
prices
walk.
for
These
methods were;
1. O r d i n a r y K r i g i n g (OK).
2.
Universal
K r i g i n g (UK).
O r d i n a r y k r i g i n g assumed a t l e a s t the q u a s i - i n t r i n s i c h y p o t h e s i s
applied
whereas
function
universal
o f which must
be
kriging
incorporated
assumed.
Deflated
drift,
prices
the
were the
basis f o r estimation.
The simple random walk was based on the f o l l o w i n g ;
P
- P
_ ! =
where: t
t - 1
= a point
i n time.
= a point
i n time a t t
minus 1 time
P
period.
= the p r i c e a t time t .
- i
"the p r i c e a t time t
minus 1 time
such t h a t E( ) = 0
= "the d i f f e r e n c e i n p r i c e s ,
: the e x p e c t a t i o n
period.
o f the d i f f e r e n c e
i n p r i c e i s zero,
and
E( ,
t
_ ) = 0
: the e x p e c t a t i o n
o f the c o r r e l a t i o n
of p r i c e d i f f e r e n c e s
This
implied
identically
that
the p r i c e
distributed.
considered
as the best
difference
between
expectation
o f which i s zero.
i s zero.
differences
are independent
and
Therefore,
today's
was
estimate
the p r i c e s
price
o f tomorrow's p r i c e
the e r r o r
of
w i t h the
estimation,
To t e s t the c a p a b i l i t y o f g e o s t a t i s t i c s t o e s t i m a t e
prices
a comparison was
made between the k r i g e d

36
future
the
future
prices
and
the random walk p r i c e s u s i n g the sum o f squared
with respect
differences
t o known p r i c e s .
K i "
GI
i =l
1.0 -
100
= R
i =l
where: i
P
= time, f o r i = 1,...,T
periods.
= known metal p r i c e a t time i .
Ki
= k r i g e d p r i c e a t time i .
G i
= random walk p r i c e a t time i .
RW i
k r i g i n g r e s i d u a l sum o f squares.
i =l
(P
K i
- P
R W i
= random walk r e s i d u a l sum o f squares.
i =l
R
A
= p e r c e n t r a t i o o f r e s i d u a l sum o f squares.
positive
R indicated
that
kriging
f u t u r e p r i c e s than the random walk.

kriging
cannot
estimate
future
random walk.
37
i s a better
estimator of
A negative R s i g n i f i e d
prices
better
than
that
simple
5.
RESULTS AND
The
prices
DISCUSSION
objective
by
g e o s t a t i s t i c a l methods.
semi-variogram was
series
o f t h i s t h e s i s was
and
each
To
do
this
metal
an experimental
c a l c u l a t e d f o r each metal c o n s t a n t p r i c e time
residual
curve f i t t i n g .
to estimate future
constant p r i c e
series
from polynomial
For each experimental semi-variogram not
showing
a 'Pure Nugget E f f e c t ' a t h e o r e t i c a l semi-variogram f u n c t i o n
was
visually
the
fitted
p r i c e s i n that
future
to
model
the
time s e r i e s .
structural
The model was
correlation
of
then used i n k r i g i n g
prices.
To e v a l u a t e the a b i l i t y o f g e o s t a t i s t i c s t o e s t i m a t e f u t u r e
prices
the
kriged
future
prices
were
compared
p r i c e s determined from a simple random walk.

based
on
the
residual
sum
of
squared
to
predicted
The comparison
differences
between
known p r i c e s and the e s t i m a t e d f u t u r e p r i c e s f o r the time
was
the
period
analyzed.
5.1
Copper
Visual
inspection
copper p r i c e s
can
be
of
the
London
Metal
(FIGURE 4) suggested the 1884
divided
into
three
separate
Exchange
t o 1986
stationary
proposed regimes were f o r the time p e r i o d s 1884

1953
and
factors
1954
and
to
1986.
the
need
Supporting t h i s
for
stationarity
constant
time
series
regimes.
t o 1917,
1918
The
to
d i v i s i o n were market
for geostatistical
applications.
For
the p e r i o d
1884
t o 1917
the market f o r c e s r e p r e s e n t e d
were those induced by e x p e c t a t i o n s o f a new

38
c e n t u r y and by World
LONDON METAL EXCHANGE ANNUAL COPPER PRICES

Current Prices
3500
Constant
3000-
c
"
L.
Prices
2500
^
2000
CO
c
1500
co
*
c
3
o
o_
1000
500-
I"""
1884
iirii|Miiiniii.iiiii|
1901
1918
I., i n . I. |
1935
1952
,,,,,,,,,, |
1969
1986
Years
FIGURE 4 .
L o n d o n M e t a l E x c h a n g e a n n u a l a v e r a g e of m o n t h l y C O P P E R p r i c e s
f o r 1 8 8 4 to 1 9 8 6 in c o n s t a n t a n d c u r r e n t p o u n d s s t e r l i n g / m e t r i c
t o n . T h e c u r r e n t p r i c e s a r e d e f l a t e d to c o n s t a n t p r i c e s u s i n g
a w h o l e s a l e , p r o d u c e r p r i c e index with the b a s e 1984=100.
EXPERIMENTAL SEMI-VARIOGRAMS OF LME COPPER PRICES

1000000q
900000-j
CM
c
trie
H2
800000^
700000^
600000^
ferll
CO
(Pourr
-o
500000-:
400000^
1884
to 1917
1917 to 1953
1954
to 1986
.
-
:A/\
/
\
300000^
200000-j
100000-
r0
10
~r~
15
15
Lag:years
20
i
25
30
FIGURE 5 . E x p e r i m e n t a l s e m i - v a r i o g r a m s of L M E c o n s t a n t a n n u a l C O P P E R p r i c e s
f o r 1 8 8 4 to 1917, 1918 to 1953 a n d 1 9 5 4 to 1 9 8 6 . T h e y i n d i c a t e
n o n - s t a t i o n a r i t y in t h e 1 8 8 4 to 1 9 8 6 c o n s t a n t c o p p e r p r i c e t i m e
s e r i e s in t h a t t h r e e r e g i m e s c a n b e d i f f e r e n t i a t e d .
39
War I .
The p e r i o d 1918 t o 1953 was i n i t i a t e d
by t h e aftermath
of World War I, s u s t a i n e d by the Great D e p r e s s i o n and ended by

the e l i m i n a t i o n o f government c o n t r o l
o f the t r a d i n g o f metals
t h a t was prompted by World War I I and t h e Korean War.
From 1954
t o 1986 post-war expansion
and i n f l a t i o n a r y a c t i o n and r e a c t i o n
dominated
forces.
the
differentiation
market
of
wholesale,producer
implementation
The
this
period
price
was
index
to the
the r e v i s i o n
f o r Great
of the
Britain
and
o f t h e new index i n 1954.
visual
prices
indicated
trends
were
i n s p e c t i o n o f the 1884 t o 1986 c o n s t a n t

a lack
visible
of stationarity
i n t h e mean
semi-variograms
were c a l c u l a t e d
plotted
non-stationarity
showed
were s i g n i f i c a n t l y d i f f e r e n t
reasons
Contributing
for differentiating
i n the time
and v a r i a n c e .
s e r i e s as
Experimental
f o r t h e t h r e e regimes
i n that
(FIGURE 5 ) .
the regimes
their
copper
and when
semi-variances
T h i s c o u p l e d w i t h the
allowed t h e t h r e e
time
p e r i o d s t o be t r e a t e d s e p a r a t e l y .
5.1.1
Copper: Variography; R e s u l t s
The experimental semi-variogram
1)
of the constant
copper
price
(FIGURE 6, APPENDIX 2 TABLE

series
f o r 1884
t o 1917
i n c r e a s e d c o n t i n u o u s l y t o a p o i n t ( l a g 4) where a c o n s t a n t
was assumed.
model
years.
A s p h e r i c a l semi-variogram
the s t r u c t u r a l
correlation
The experimental
f u n c t i o n was f i t t e d t o
of prices
semi-variogram
level
up t o a l a g o f 4
showed
a hole
effect
where t h e s e m i - v a r i a n c e s formed a trough a f t e r r e a c h i n g the peak

at a l a g o f 4 y e a r s .
Because the trough was r e l a t i v e l y
40
shallow
a s p h e r i c a l semi-variogram f u n c t i o n was though t o be an adequate

model.
The parameters o f the f i t t e d s p h e r i c a l model a r e :
SILL
= 162819.8 (pounds
NUGGET EFFECT Co =
RANGE
The
1953
sterling/tonne)
4.0 y e a r s .
copper
price
experimental semi-variogram
model t h e r e l a t i o n s h i p
representing
12 y e a r s .
to
s t r u c t u r a l r e l a t i o n s h i p between p r i c e s
constant
fitted,
37500.0 (pounds
sterling/tonne)
A minor
significantly
series
was
i n the 1918 t o
expressed
i n the
(FIGURE 7, APPENDIX 2 TABLE 2 ) .
a spherical
semi-variogram
c o r r e l a t i o n between p r i c e s
function
To
was
f o r a range o f
h o l e e f f e c t was noted, but was not b e l i e v e d

influence
the modelling
because
of
i t s
shallowness.
The parameters o f t h e f i t t e d s p h e r i c a l model a r e :
SILL
= 105500.0 (pounds
NUGGET EFFECT Co =
The
price
7500.0 (pounds
RANGE
experimental
semi-variogram
series
showed t h a t
sterling/tonne)
sterling/tonne)
12.0 y e a r s .
of the constant
copper
f o r 1954 t o 1986 (FIGURE 8, APPENDIX 2 TABLE 3)

the p r i c e s
i n t h e time s e r i e s were q u i t e
T h i s was e v i d e n t as t h e f i t t e d s p h e r i c a l semi-variogram
variable.
function
had a l a r g e s i l l v a l u e .
SILL
= 805818.7 (pounds
NUGGET EFFECT Co =
RANGE
0.0 (pounds
13.8 y e a r s .
41
sterling/tonne)
sterling/tonne)
S E M I - V A R I O G R A M O F L M E 1884 T O 1917 C O P P E R P R I C E S
400000-1
CN
*v 330000C
o
s 300000-
Semi-variogram
Spherical Function
230000-
N
<
o>
c 200000w
CO
190000-
TJ 100000c3
O
O. 30000w
0-
12
21
13
24
27
30
It
FiniPF R
Lag.year.
r ivjurcr. O. - r experimental semi-variogram can be fitted by a SPHERICAL f unction,SILL(C) =
162819.8(3/torine) ,NUGGET EFFECT(Co)=37500.0(S/tonne)' and RANGE(a) = 4years.
n e
210000-1
CM
C
180000-
Sm]-vorlogram
Spherical Function
rle
t-
o>
c
CO
M
TC>
3
O
a.
1900001200009 000060000300000-
FIGURE
' The experimental semi-variogram can be fitted by a SPHERICAL function,SILL(C) =

105500.0( /tonne)',NUGGET EFFECT(Co)=7500.0(/tonne) and RANGE(a) = 12years.
s
5.1.2
Copper: Variography;
The
fitting
experimental
of
Discussion
a spherical
semi-variogram
semi-variogram
indicates
that
function
there i s a
to
an
zone
of
c o r r e l a t i o n around the p r i c e at each p o i n t
i n time.
Within t h i s
zone
the
prices
prices
are
correlated
uncorrelated.
The
'range'
zone
of
the
and
degree
of
of
beyond
correlation
influence
and
zone
i s related
the
level
or
which the t r a n s i t i o n from b e i n g c o r r e l a t e d t o b e i n g

occurs.
are
Furthermore,
averages
of
to
prices
the
the
'sill'
at
uncorrelated
as the annual p r i c e s used i n t h i s
monthly
are
continuity
thesis
of
the
r e g u l a r i z a t i o n from monthly t o annual p r i c e s i s expressed by the

'nugget e f f e c t ' .
The
to
1917
'range' o f 4 y e a r s o f the s p h e r i c a l model f o r the

copper
prices
rapidly
(lag)
increases
shown by
constant p r i c e
become
the
series
more v a r i a b l e
(FIGURE
'sill'
time
6).
value
This
as
indicates
their
variability
(162819.8
(pounds
time
1884
that
the
separation
i s moderate
sterling/tonne) )
2
t h a t i s r e l a t e d t o the v i s i b l e d i f f e r e n c e s between the peaks

troughs o f the c o n s t a n t p r i c e
and troughs a l s o
the
These
to
(37500.0
i n monthly
peaks
prices
from
monthly
year
that
prices
to
large
signifies
i n the
The
year
by
may
and/or
related
a
be
a
to
i n the copper supply.
In c o n t r a s t ,
1918
sterling/tonne) )
i n the r e g u l a r i z a t i o n o f the p r i c e s
inconsistencies
the
(pounds
seasonal v a r i a b i l i t y
variability
and
seem t o be somewhat s y s t e m a t i c as v e r i f i e d
effect'
discontinuity
for
(FIGURE 4 ) .
h o l e e f f e c t i n the experimental semi-variogram.
'nugget
due
series
as
to
the 'range' o f 12 y e a r s o f the s p h e r i c a l model

1953
copper
constant p r i c e
43
time
series
shows
t h a t the r a t e a t which the p r i c e s become more v a r i a b l e i s slower

(FIGURE
7).
The
variability
reached
at t h i s
lower as expressed by the s m a l l e r ' s i l l '

sterling/tonne) )
the
constant p r i c e
troughs t h a t
'nugget
time
series
series,
to
the
the
'range
spherical
peaks
and
h o l e e f f e c t as
A small
o f government c o n t r o l ,
model
' o f the 1954
troughs
(FIGURE 7 ) .
and a v e r y low demand f o r copper, 1930
Similar
The
to a subtle
experimental semi-variogram
e f f e c t ' shows the i n f l u e n c e
t o 1953,
v a l u e (105500.0(pounds
(FIGURE 4 ) .
are apparent g i v e r i s e
shown i n the
i s also
and the l a c k o f exaggerated peaks and
in
'range'
for
t o 1986
to
1918
1939
1937.
to
1953
time
copper c o n s t a n t p r i c e
time s e r i e s s p h e r i c a l model i s l a r g e b e i n g 13.8 y e a r s (FIGURE 8)

and
is
implies
high.
reached
that
the r a t e
U n l i k e the 1918
at
conveyed
the
by
'range'
the
sterling/tonne)
and
suggests
supply.
t o 1953
of
large
as
time s e r i e s (FIGURE 4 ) .
series
a t which
no
this
p r i c e s become more v a r i a b l e
time s e r i e s , the
time
series
'sill'
value
visible
i n the
The
seasonal
Though, the absence
of
effects
and
o f a 'nugget
i s high
805818.7
copper
zero 'nugget
variability
as
is
(pounds
constant
price
e f f e c t ' f o r t h i s time
a
consistent
copper
effect' i s possibly
f u n c t i o n o f the f i t t e d s p h e r i c a l model and the method o f
fitting
the model.
The c l a s s i f i c a t i o n o f the v a r i a b i l i t y between p r i c e s i n the
three
regimes,
1954
to
1986;
1986
copper
1884
high,
t o 1917;
moderate,
supports the
constant p r i c e
1918
contention that
time s e r i e s
the
low,
1884
i s non-stationary.
t h r e e regimes are t r e a t e d as b e i n g s t a t i o n a r y .
44
t o 1953;
and
to
The
5.1.3
Copper: K r i g i n g ;
A spherical
structural
R e s u l t s 1884
semi-variogram
to
1917
function
was
c o r r e l a t i o n of p r i c e s w i t h i n
constant p r i c e
time
series
used
the 1884
(FIGURE 6 ) .
This
t o model
t o 1917
model and
neighbourhoods of 4 and 5 years were used i n o r d i n a r y

estimate p r i c e s
5
years
was
kriging
f o r the y e a r s 1885
used
to
test
neighbourhood
t o 1917.
whether
would
give
the
copper
kriging
k r i g i n g to
A neighbourhood of
additional
better
prices
estimates
in
the
than
the
'range' o f 4 y e a r s o f the model.

The
known
squared
prices,
differences
the
and
the
t h e i r squared d i f f e r e n c e s
APPENDIX 3
their
TABLE
percent
TABLE 1,
an
random
walk
estimates
price
sums o f
r a t i o s , kriged
the
versus
squared
and
differences
random walk,
periodicity
semi-variogram
series,
prices
lags
are
and
shown i n
hole
effect
for this price
of
the
was
of
1884
used
time
years
to
shown
1917
copper
i n kriging
series.
The
up
to 8 years
(FIGURE 6,
for
Weighting
kriging
factors
and f u t u r e p r i c e s
The
procedure
kriged
and
were determined
of
6,
the
price
hole e f f e c t
of
was
semi-variogram
APPENDIX 2 TABLE 1).
neighbourhoods
by
estimates
s e m i - v a r i a n c e s were used as the elements o f the o r d i n a r y

matrix
their
estimates
r e p r e s e n t e d by semi-variances of the experimental

for
and
w i t h the known p r i c e s are p r e s e n t e d i n
The
apparent
experimental
future
price
A.
With
time
1.
kriged
and
f o r the neighbourhood
These
kriging
years.
prices
estimated.
future
their
price
squared
estimates
using
differences
with
45
t h i s hole
effect
the
prices
known
are p r e s e n t e d
i n APPENDIX 3 TABLE 2.
The
sums o f the
squared
d i f f e r e n c e s and t h e i r percent r a t i o s are shown i n TABLE 1,

The sums of squared d i f f e r e n c e s f o r the 1884
t o 1917
A.
copper
c o n s t a n t p r i c e time s e r i e s (TABLE 1, A) showed t h r e e t h i n g s :

1. O r d i n a r y k r i g i n g gave b e t t e r f u t u r e p r i c e
t o 1917
estimates
than the simple random
walk e s t i m a t e s , percent r a t i o s > +
12%.
2. U s i n g the h o l e e f f e c t improved the e s t i m a t i o n of

future prices.
3. The r e s u l t s showed t h a t the more p r i c e s i n the
k r i g i n g neighbourhood the b e t t e r the e s t i m a t e s
of f u t u r e p r i c e s over the 33 year p e r i o d .
5.1.4
Copper: K r i g i n g ; R e s u l t s 1918
The
1953
structural
copper
spherical
correlation
constant
price
semi-variogram
to
1953
between p r i c e s
time
series
was
f u n c t i o n (FIGURE 7 ) .
i n the
1918
modelled
by
T h i s model
to
a
was
used by o r d i n a r y k r i g i n g t o estimate f u t u r e p r i c e s f o r the y e a r s

1919
t o 1953.
Two
k r i g i n g neighbourhoods were used,
12
and
13
y e a r s , w i t h the l a t t e r t e s t i n g whether a d d i t i o n a l p r i c e s i n the

k r i g i n g neighbourhood would g i v e b e t t e r e s t i m a t e s than the model
'range' o f 12 y e a r s .
Known p r i c e s and
the k r i g e d p r i c e e s t i m a t e s , t h e i r
squared
d i f f e r e n c e s and the squared d i f f e r e n c e s of the random walk p r i c e

e s t i m a t e s and the known p r i c e s are p r e s e n t e d i n APPENDIX 3 TABLE
3.
The
sums o f the squared d i f f e r e n c e s and t h e i r p e r c e n t
are shown i n TABLE 1,
B.
46
ratios
The
r e s u l t s o f comparison between the sums o f the squared
differences
f o r ordinary
random walk p r i c e
copper c o n s t a n t
kriging
estimates
price
future
price
e s t i m a t e s and
(TABLE 1, B) f o r t h e 1918 t o 1953
time s e r i e s were o p p o s i t e t o the r e s u l t s
from the 1884 t o 1917 s e r i e s .

1. O r d i n a r y k r i g i n g estimated f u t u r e metal
prices
m a r g i n a l l y poorer than the simple random walk f o r

the y e a r s 1919 t o 1953, percent r a t i o s < - 6.0%.
2. E s t i m a t e s o f f u t u r e
p r i c e s f o r t h e time s e r i e s 1919
t o 1953 were not improved when a k r i g i n g

neighbourhood l a r g e r than the 'range' o f the
s p h e r i c a l model was used.
5.1.5 Copper: K r i g i n g ;
A
spherical
structural
constant
this
estimate
future
kriging
kriging
time
series
prices
function
of prices
and two k r i g i n g
neighbourhood
the
semi-variogram
correlation
price
model
R e s u l t s 1954 t o 1986
was used t o model the
i n the 1954 t o 1986
(FIGURE 8 ) .
Ordinary
neighbourhoods,
f o r the y e a r s
copper
kriging
used
4 and 14 y e a r s , t o
1955 t o 1986.
A kriging
o f 4 y e a r s was used t o t e s t whether the s i z e o f

neighbourhood
to give
better
greatly
future
influenced
price
the a b i l i t y
estimates
than
of
simple
random walk.
The
kriging
differences
results,
the known
prices
and t h e i r
a r e p r e s e n t e d i n APPENDIX 3 TABLE 4.
squared
Also i n t h i s
t a b l e a r e the random walk f u t u r e p r i c e e s t i m a t e s and the squared

differences
between them and the known p r i c e s .
47
The sums o f the
squared d i f f e r e n c e s
1,
and t h e i r p e r c e n t r a t i o s are shown i n TABLE
C.
Universal
k r i g i n g was
a l s o undertaken
copper c o n s t a n t p r i c e time s e r i e s .
2
( q u a d r a t i c ) was
(FIGURE
price,
9).
fitted
experimental
APPENDIX
was
fitted
to
1986
A p o l y n o m i a l curve o f o r d e r
prices
price
of
minus
this
the
time
series
curve
fitted
(FIGURE 10, APPENDIX 4 TABLE 1) and
semi-variogram
11,
function
the
R e s i d u a l s , known
were c a l c u l a t e d
(FIGURE
to
f o r the 1954
of
TABLE
the
4).
residuals
A
was
spherical
an
determined
semi-variogram
t o the experimental semi-variogram
(FIGURE
11).
SILL
= 333873.0 (pounds
NUGGET EFFECT Co =
RANGE
60000.0 (pounds
sterling/tonne)
sterling/tonne)
7.0 y e a r s .
The model and m = 2 e q u a t i o n s were used by u n i v e r s a l k r i g i n g t o

estimate p r i c e s
1969
t o 1986,
was
t o 1986.
chosen because i t was
This
time s e r i e s ,
f e l t that with a
'range'
o f 7 y e a r s t o adequately model a q u a d r a t i c curve a t l e a s t double

the
range
was
need
f o r the
k r i g i n g neighbourhood
the
total
determined
procedure
ordinary
The
their
are
number
a
to
model
kriging
neighbourhood.
Also
o f 15 y e a r s r e p r e s e n t e d almost o n e - h a l f o f
of
prices
and
estimate
in
selected
future
the
a
prices
time
series.
Having
kriging
neighbourhood
the
was
same as
that
for
known p r i c e s
and
the
kriging.
kriged
squared
future
price
differences
and
e s t i m a t e s , the
those
p r e s e n t e d i n APPENDIX 3 TABLE 5.
48
o f the
The
simple random walk

sums of the
squared
L M E 1954 T O 1986 A N N U A L C O N S T A N T C O P P E R PRICES

Constant Prices
3600
Q u a d r a t i c Curve
o
3000
2400
CO
leoo
**
1200
-a
c
3
oo
i ii>ii''i'i'i'i'i
1
1993
FIGURE
9.
1996
1939
1962
1969
1968
1971
1974
1977
1980
1983
Years
London Metal Exchange constant 1954 to 1986 COPPER prices fitted with a
quadratic curve, -30575.2 + 785.7 T - 4.7 T*.
R E S I D U A L 1 9 5 4 T O 1986 L M E C O P P E R P R I C E S
GO
in
o
o
-1000
1993
F I G U R E 10.
1996
1962
1969
1968
1971
1974
1977
1980
1983
Year*
The constant COPPER price residuals for 1954 to 1986, the known prices
minus the quadratic curve prices.
S E M I - V A R I O G R A M O F L M E 1954 T O 1 9 8 6 C O P P E R P R I C E S
Semi-variogram
900000-1
Spherical Function
-t
F I G U R E 11. Semi-variogram of the residuals fiHed by a SPHERICAL f unction,SILL(C) =

805818.7(3/ionne) ,NUGGET EFFECT(Co)=0.0(ytonne) and RANGE(a) = 13.8yars.
1
49
differences
f o r the
time
series
r a t i o s are shown i n TABLE 1,

A polynomial
to
1973
series
curve
of o r d e r 2
constant copper
(FIGURE
12).
would
This
improve
r e s i d u a l s were determined
experimental
TABLE
5).
1986
and
the
percent
( q u a d r a t i c ) was
also
p r i c e s of the 1954
was
to
see
whether
the
future price
fitted
t o 1986
time
short
trend
estimation.
The
(FIGURE 13, APPENDIX 4 TABLE 2) and
semi-variogram
This
to
C.
t o 1986
determination
1969
calculated
experimental
(FIGURE
semi-variogram
14,
an
APPENDIX
evinced
'Pure
Nugget E f f e c t ' which i m p l i e d t h a t the b e s t e s t i m a t e o f a f u t u r e

p r i c e was
the p r i c e determined
Prices
estimated
the
known p r i c e s
1986,
random
walk
shown
in
from
estimates
APPENDIX
and
and
from the q u a d r a t i c e q u a t i o n .
the q u a d r a t i c e q u a t i o n
their
the
TABLE
squared
related
6.
differences
squared
The
f o r 1985
sums
and
the
differences
are
of
the
squared
d i f f e r e n c e s and t h e i r percent r a t i o s are shown i n TABLE

The
r e s u l t s of the sums of squared
differences
between the random walk, o r d i n a r y k r i g i n g

future p r i c e estimates
1C.
comparisons
and u n i v e r s a l
(TABLE 1, C) f o r the 1954
and
t o 1986
kriging
copper
c o n s t a n t p r i c e time s e r i e s were:
1. O r d i n a r y k r i g i n g gave a b e t t e r estimate o f f u t u r e
p r i c e s than the simple random walk and
k r i g i n g , percent r a t i o s > +
universal
0.7%.
2. B e t t e r e s t i m a t e s o f f u t u r e p r i c e s o c c u r r e d when a
l a r g e k r i g i n g neighbourhood was
used, 2
the
'range'.
3a. U n i v e r s a l k r i g i n g w i t h a q u a d r a t i c curve
to
the 1954
t o 1986
50
time s e r i e s gave the
fitted
worst
LME
1973 T O 1986 A N N U A L C O N S T A N T C O P P E R PRICES

Conttant P r i e s t
3200-]
3000-
Quadratic
Curve
2800-
e
t- 2 6 0 0 V
24002200-
2000-
1600-
1800-
1400-
1/1
12001000-
T>
c
3
800600-
o
a.
4002001974
1972
FIGURE 1 2 .
1976
1978
19(0
1962
1986
1984
Year*
London Metal Exchange constant 1973 to 1986 COPPER prices fitted with a
quadratic curve, 185572.6 - 3692.8 T + 18.5 T'.
RESIDUAL 1973 T O 1986 L M E C O P P E R PRICES
400-
i-
200-
0>
-200
-800
1972
1974
FIGURE 1 3 .
140000
d
*
c 120000
o
T
1976
1976
I960
1986
1982
1964
Year*
The constant COPPER price residuals for 1973 to 1986, the known prices
S E M I - V A R I O G R A M O F L M E 1973 T O 1986 C O P P E R PRICES
S e m i - v a r lo gram
Population Variance
100000
80000-
CO
60000
o
1/1
40000
20000
-1
FIGURE 1 4 .
10
II
12
Lagiyeort
Experimental semi-variogram of the residuals showing a PURE NUGGET

EFFECT.
51
e s t i m a t e s f o r 1969 t o 1986, percent

<
3b.
ratios
30%.
Universal k r i g i n g with a quadratic
curve
fitted
t o the 1954 t o 1986 time s e r i e s gave the best

e s t i m a t e o f the f u t u r e p r i c e f o r 1985 and 1986,
percent
r a t i o > + 75%.
4. The q u a d r a t i c
curve f i t t e d t o the 1973 t o 1986
copper constant
p r i c e time s e r i e s , the f i t t e d
p r i c e s , gave the worst f u t u r e e s t i m a t e s o f the

1985
and 1986 p r i c e s , percent
5.1.6 Copper: K r i g i n g ;
r a t i o s < - 60%.
Discussion
From the r e s u l t s i t can be suggested t h a t o r d i n a r y

is
generally
simple
a better
random
estimate
estimator
walk.
future
Though
prices
prices
i n the time
excel
i s when
of future
i t appears
i s related
series.
prices
that
the v a r i a b i l i t y
than
between
prices
series,
the
apparently
The
ability
copper time s e r i e s ,
random
between
walk
prices,
estimates
In t h e case
the 1918 t o 1953 time

of
future
prices
are
better.
kriging
neighbourhood
t o estimate
averaging
variability
ordinary
variability
between
i s moderate,
t o h i g h l y v a r i a b l e , the 1954 t o 1986 time s e r i e s .

a lower
to
k r i g i n g appears t o
s i m i l a r t o t h a t o f the 1884 t o 1917 constant
of
i s the
the a b i l i t y
t o the v a r i a b i l i t y
Where o r d i n a r y
kriging
method,
between
future
the
prices.
larger
prices
i s an important
Being
that
kriging
the neighbourhood
i s moderate
t o high
k r i g i n g can e s t i m a t e f u t u r e p r i c e s .
52
aspect
i n the
i s an
when
the
the
better
Averaging dampens
TABLE 1.
***
SUMS OF SQUARED DIFFERENCES COPPER * * *
Variable
: COPPER, London M e t a l Exchange
Deflator
: WHOLESALE,PRODUCER PRICE INDEX
Time S e r i e s : YEARLY, 1954 t o 1986
TABLE A
: 1885 t o 1917
ORDINARY
ORDINARY
KRIGING
. KRIGING
N = 4
N = 5
RANDOM
WALK
(/m.t.)
(/m.t.)
6247672.9 5476779.7
% RATIO
+12.3
TABLE B
(/m.t.)
5307291.2
+15.0
(/m.t.)
(/m.t.)
(/m.t.)
1324785.3
1405791.7
% RATIO
-6.1
TABLE C
YEARS
(/m.t.)
5213216.5
5208069.3
+16.2
+ 16.56
+ 16.64
1430671.3
- 8.0
: 1955 t o 1986
ORDINARY
ORDINARY
UNIVERSAL
KRIGING
KRIGING
KRIGING
N = 4
N = 14
N = 15
RANDOM
WALK
(/m.t. )
1 9551968
3279083. 9
19691984
4614828. 3
19851986
39165. 6
7933077. 8
RATIO
N: K r i g i n g
(/m.t. )
(/m.t.)
(/m.t . )
POLYNOMIAL
CURVE
FITTING
2
(/m.t. )
3246191. 4
3234317.5
4592104. 1
4352199.3
6889939 .8
38452. 6
53236.2
9351 .2
62898.8
7876748. 1
7639753.0
6899291 .0
62898.8
+ 0.7
+ 3.7
N e i g h b o u r h o o d ; m.t.: M e t r i c
53
5237646.0
ORDINARY
ORDINARY
KRIGING
KRIGING
N = 12
N = 13
(/m.t.)
(/m.t.)
Hole E f f e c t Model
ORDINARY
ORDINARY
ORDINARY
KRIGING
KRIGING
KRIGING
N = 6
N = 7
N = 8
: 1919 t o 1953
RANDOM
WALK
SUM
1984=100
- 48.2
Tons,
--
- 60.6
between p r i c e s
and more p r i c e s used
i n c r e a s e s the dampening e f f e c t .
thought
i s that
variability
using
A s u g g e s t i o n from t h i s
experimental
smaller kriging
i n kriging
semi-variograms
neighbourhood
would
l i n e of
with
low
give
better
the
simple
estimates.
From the
random walk
above r e a s o n i n g i t can be
used
here
is a
special
shown t h a t
case
of
ordinary
kriging.
The random walk says t h a t the b e s t e s t i m a t e o f tomorrow's p r i c e

is
today's
viewed
price.
as
influencing
limiting
the
ordinary
kriging
because
This
kriging
o c c u r s because
tomorrow's
simple
o f the c o n d i t i o n t h a t
must equal 1;
price.
neighbourhood
produces
o n l y today's
to
is
by
In
the
same way
only
one
time
period
This
occurs
random
the sum
price
walk.
o f the w e i g h t i n g
f o r examples note the 1885,
1919
and
factors
1955
kriged
f u t u r e p r i c e s i n APPENDIX 3 TABLES 1, 3 and 4 r e s p e c t i v e l y .

The
weighting f a c t o r s
neighbourhood
g i v e n t o the p r i c e s
linear
shown
using
11
Ordinary k r i g i n g
calculates
on the s l o p e o f the l i n e a r model.
i n FIGURE
15.
Weighting
factors
weighting
(FIGURE
decreases
15,TABLE
the
increases
(FIGURES 15b,
slope
zero,
of
weighting
factors
number
of
c and d ) .
'Pure
would
2).
Nugget
a l l be
As
have
non-zero
been
Effect'
factors
calculated
neighbourhood
slope of
the
weighting
I t can be deduced
equal.
54
the
using a
T h i s dependence i s
each o f the l i n e a r models f o r a k r i g i n g
periods
model
function
fitted
and r e l a t e d t o the number o f
neighbourhood.
semi-variogram
dependent
kriging
are determined from the continuous f u n c t i o n
t o the e x p e r i m e n t a l semi-variogram
prices
i n the
would
For an
of
linear
factors
that f o r a
occur
as
extremely
the
steep
FIGURE 15.
KRIGING WEIGHTS AS A FUNCTION O F A LINEAR SEMIVARIOGRAM

(b)
OPJ_- OJ091 OJNIT)!/PERIOD.
Co
3
13
Lagiperlodt
N e i g h b o u r ho o d . p e r l o d i
-10
Kriging weights from ordinary kriging using a LINEAR semi-varlogram

with a nugget effect = 1.0 (unit)' and a SLOPE = 5.5 (unlt)Vperlod
for a neighbourhood of 11 periods.
Theoretical LINEAR semi-vasograms with a NUGGET EFFECT = 1.0

(unit)' and SLOPES = 5.5, 1.0 and 0.091 (unlt)'/perlod.
i-
(c)
(d)
o.u
0.8-
u
O
0.7-
u.
OJ
c 0.6-
"Z.
0.3-
0.4-
0.3-
vi
o'.J0.1-
to
Nelghbourhoodiperlodt
Kriging weights from ordinary kriging using a LINEAR semi-varlogram

with a nugget effect = 1.0 (unit)' and a SLOPE = 1.0 (unlt) /prlod
l
03
Nelghbourhoodiperlodl
Kriging weights from ordinary kriging uslnga LINEAR seml-varlogram

with a nugget effect = 1.0 (unit) and a SLOPE = 0.091 (unit)Vp d
2
erI
TABLE 2.
*** WEIGHTING
Theoretical
Linear
Linear
FACTORS ***
Semi-variogram Weighting
Semi-variograms
: FIGURE 15.
1. NUGGET EFFECT
(Co) = 1.0
SLOPE
(UNIT) /PERIOD
2. NUGGET EFFECT (Co)
1.0
(UNIT)
1.0
(UNIT) /PERIOD
(A)
SLOPE
Period
1
2
3
4
5
6
7
8
9
10
11
5.5
3. NUGGET EFFECT (Co) = 1.0
FACTORS
(UNIT)
(A)
SLOPE
WEIGHTING
Factors.
(UNIT)
(A) = 0.091
(UNIT) /PERIOD
2
from o r d i n a r y k r i g i n g u s i n g a k r i g i n g
n e i g h b o u r h o o d o f 11 y e a r s f o r e c a s t i n g
the s u c c e e d i n g p e r i o d .
LINEAR SEMI-VARIOGRAM
1.
0.923
0.071
0.006
0.000
0.000
0.000
0.000
-0.000
0.000
-0.000
0.000
:
2.
0.732
0.196
0.053
0.014
0.004
0.001
0.000
0.000
0.000
-0.000
0.000
56
3.
0.345
0.226
0, 1 48
0, 097
0. 064
0, 042
0. 028
0, 019
0.013
0.010
0.008
slope
a w e i g h t i n g f a c t o r o f 1 would be g i v e n
t o the
first
point
i n the k r i g i n g neighbourhood r e s u l t i n g i n a random walk.

I t has
is
been s t a t e d t h a t a s p h e r i c a l semi-variogram
linear
1977).
and
for
This
up
about
).
Using
20
the
of
function
weighting
have
been
model
and
(TABLE 4 ) .
sequence o f
16).
next
This
portion
of
suggests
a
factors
positive
weights.
'nugget
of
effect'
and
i s associated
and
weights the
p o s i t i v e weights
that
spherical
weighting
intersected
kriging
changing
model
the
Changes
the
would
the
change
of
the
the
in
when
slope
'range' o f
the
occur
the
(FIGURE
linear
of
negative
the
s p h e r i c a l model
the
curvature
values
d i s t r i b u t i o n of
implies
with
'sill'
slope
by
negative
Zoning of the weights
p o s i t i v e weights
sequence
(David
f a c t o r s were produced
l i n e a r p o r t i o n of the model, the n e g a t i v e

the
'range'
are shown as zones o f p o s i t i v e and
weights i n FIGURE 17
and
its
where a t h e o r e t i c a l l i n e a r
spherical
periods
o r d i n a r y k r i g i n g and
first
thirds
semi-variogram
neighbourhood o f
the
two
i s shown i n FIGURE 16
spherical
(TABLE
to
function
are
the
and
'sill',
varied
i n d i v i d u a l l y o r i n combinations.
Negative weights have been e x p l a i n e d
as r e p r e s e n t i n g
a screening
effect.
i n mining s i t u a t i o n s
T h i s e f f e c t o c c u r s when one
point
t h a t i s n e a r e r t o the p o i n t being
kriged i s i n f r o n t of a
point
that
and
Journel
i s f u r t h e r away ( B a a f i , Kim
(1986) s t a t e s t h a t negative
Szidarovszky
weights are no
expected whenever a continuous s p a t i a l model i s

As
stated
continuous
the
weighting
semi-variogram
semi-variogram.
This
factors
function
function
57
are
fitted
converts
a
to
and
are
considered.
function
the
evil
1986).
of
the
experimental
discrete
semi-
IDEALIZED SPHERICAL SEMI-VARIOGRAM
MODEL
Slope - 1.0 ( u n i O V p o r i o d
+IVE
WEIGHTS
CM
-IVE
WEIGHTS
!
;
c
+IVE
WEIGHTS
,a
I I
Cc
1
Lag:periods
FIGURE 16.
I d e a l i z e d S P H E R I C A L s e m i - v a r i o g r a m s i l l (C) = 9 . 0 ( u n i t ) , n u g g e t
e f f e c t ( C o ) = 1.0 ( u n i t ) , a n d r a n g e (a) = 13.4 p e r i o d s s h o w i n g
l i n e a r i n f l u e n c e a n d z o n e s of + i v e a n d ive w e i g h t s f r o m o r d i n a r y
k r i g i n g a n d a n e i g h b o u r h o o d of 2 0 p e r i o d s , note
FIGURE 17 b e l o w .
2
WEIGHTING FACTORS
0.7-2
10 11
Periods
FIGURE 17.
12
13 1-4 15 16 17 18
19 20
Kriging weights from ordinary kriging using the above

S P H E R I C A L m o d e l a n d a k r i g i n g n e i g h b o u r h o o d of 2 0
periods.
T A B L E 3.
*** T H E O R E T I C A L
Theoretical
L I N E A R , SPHERICAL SEMI-VARIANCES ***
Linear
Parameters
Semi-variogram
: NUGGET E F F E C T ( C o ) = 1.0
: SLOPE
Theoretical
Spherical
Parameters
(A)
Semi-variogram
: SILL
: RANGE
1
2
3
4
5
6
7
8
9
10
1 1
12
1 3
14
FIGURE 16.
( C o ) = 1.0
(a)
= 13.4
SEMI-- V A R I A N C E S
LINEAR
SPHERICAL
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
2.006
3.000
3.972
4.910
5.804
6.641
7.411
8. 102
8.704
9.204
9.593
9.858
9.988
10.000
59
(UNIT)
1.0 ( U N I T )
( C ) = 9,0
: NUGGET E F F E C T
LAGS ;
: FIGURE 15.
2
/PERIOD
TABLE
***
WEIGHTING
4.
FACTORS
***
Theoretical Spherical Semi-variogram Weighting

Spherical Semi-variogram
: FIGURE 16.
Parameters
WEIGHTING
Period
1
2
3
4
5
6
7
8
Period
FACTORS
SILL
NUGGET E F F E C T
RANGE
= 9.0
(UNIT)
(Co)
1.0
(UNIT)
(a)
13.4
YEARS
0.729
0.197
0.074
:
4
0.
0.
0.
0.
NEIGHBOURHOOD
9
10
1 1
1
0 . 722
2
0 . 189
3
0 . 046
4
0 . 007
5
- 0 . 0 0 3
6
- 0 . 006
7
- 0 . 004
0 . 005
8
9
0 . 043
1 0
1 1
12
1 3
14
1 5
16
17
18
19
20
(C)
from o r d i n a r y k r i g i n g u s i n g
kriging
n e i g h b o u r h o o d s o f 2 t o 20 y e a r s
f o r e c a s t i n g the succeeding p e r r i o d .
NEIGHBOURHOOD
2
3
0 .748
0 .252
Factors.
0 .720
0 .189
0 .046
0 .008
-0 .003
-0 .006
-0 .006
-0 .004
0 .007
0 .050
0 .717
0 .188
0 .046
0 .008
-0 .003
-0 .006
- 0 .007
- 0 .007
- 0 .004
0 .009
0 .057
5
727
191
052
031
0.
0.
0.
0.
0.
6
726
190
047
014
023
0 .726
0 .189
0 .046
0 .009
0 .005
0 .026
0.725
0 . 189
0.046
0.007
- 0 . 0 0 1
0.003
0.031
0.724
0 . 189
0.046
0.007
-0.003
-0.004
0.004
0.037
12
13
14
15
20
0 .713
0 .188
0 .046
0 .008
-0 .002
-0 .005
-0 .007
-0 .007
-0 .007
-0 .004
0 .010
0 .066
0.709
0 . 187
0.047
0.009
-0.002
-0.005
-0.006
-0.007
-0.007
-0.007
-0.004
0.012
0.075
0.703
0 . 186
0.047
0.009
-0.001
-0.004
-0.006
-0.007
-0.007
-0.008
-0.007
-0.002
0.020
0.077
0.699
0.185
0.047
0.010
-0.001
-0.004
-0.005
-0.006
-0.007
-0.008
-0.008
-0.005
0.010
0.041
0.052
0.693
0.181
0.045
0.008
-0.002
-0.005
-0.005
-0.005
-0.006
-0.007
-0.007
-0.004
0.008
0.032
0.019
0.008
0.003
0.003
0.009
0.033
60
variogram
t o a continuous
one
and
has
a smoothing e f f e c t .
the case o f u s i n g the semi-variances from the experimental

variogram
t o model the h o l e e f f e c t
constant p r i c e
time
series that
i n the
1884
In
semi-
t o 1917
copper
smoothing does not o c c u r .
But
t h i s technique g i v e s a b e t t e r e s t i m a t e o f the f u t u r e p r i c e s than

t h a t u s i n g a continuous f u n c t i o n .
by
using
discrete
context
which
continuous
e q u a l l y spaced
the
applicable
the
worse
being
an
may
estimated.
be
continuous
prices
of
smoothing
estimates
experimental
Effect'
Therefore,
when
are
of
'Pure Nugget
prices.
produces
prices
semi-variances
shows a
future
function
T h i s suggests t h a t
In
this
semi-variogram
used
i n estimating
functions
points
when
are
intermediate
more
to
the
d i s c r e t e e v e n l y spaced time s e r i e s are wanted.

Universal
prices
The
when
problem
kriging
applied
lies
produces
over
the
the
worst
whole
time
series
w i t h the method of curve
l e a s t squares g i v e the g r e a t e s t importance

few
prices
estimates
C).
By
prices
the
f o r the
fitting
shown t h a t
Effect'
in
the
time
last
the
series.
few
prices
This
experimental
results
prices.
was
d i s c u s s i o n suggests t h a t a curve f i t t e d
This
and
last
i n very
good
series
f o r 1973
semi-variogram
fitted
as o r d i n a r y
t o the f i r s t
(TABLE 1
t o 1986
i t was
Nugget
the b e s t e s t i m a t e s of the
curve
of future
investigated.
fitting
i n the time
a curve t o the p r i c e s
implying that
are
estimates
'Pure
1985
and
and
the
1986
previous
over a l o n g time
series
would a l l o w u n i v e r s a l k r i g i n g t o g i v e b e t t e r e s t i m a t e s of f u t u r e
prices
only
at the
end
of the
p e r i o d s beyond the s e r i e s .
61
time
series
and
f o r one
or
two
5.2
Lead
Following
the reasoning
1986
constant
into
three
1953
and 1954 t o 1986.
was
lead
price
regimes.
investigated
outlined
time s e r i e s
f o r copper
t h e 1884 t o
(FIGURE 18) was separated
These regimes were 1884 t o 1917, 1918 t o

Only the 1954 t o 1986 p r i c e time s e r i e s
as i t r e p r e s e n t s t h e b a s i s f o r f o r e c a s t i n g
lead
p r i c e s f o r 1987 and beyond.
5.2.1
Lead: Variography;
The
experimental
Results
semi-variogram
(FIGURE
19, APPENDIX
TABLE 6) o f t h e constant l e a d p r i c e time s e r i e s f o r 1954 t o 1986

rose
continuously
Nugget E f f e c t ' .
to
f o r 5 lags
then
deteriorated
into
'Pure
A s p h e r i c a l semi-variogram f u n c t i o n was f i t t e d
the experimental
semi-variogram
t o model
c o r r e l a t i o n between t h e p r i c e s f o r 5 l a g s
the s t r u c t u r a l
and the apparent
lack
o f c o r r e l a t i o n beyond.
The
parameters o f t h e f i t t e d
SILL
= 23673.8 (pounds
NUGGET EFFECT Co =
RANGE
5.2.2
Lead: Variography;
The
s p h e r i c a l model a r e :
2000.0 (pounds
sterling/tonne)
sterling/tonne)
5.0 y e a r s .
Discussion
'range' o f 5 y e a r s o f t h e s p h e r i c a l model f i t t e d t o the
experimental
semi-variogram
f o r t h e 1954 t o 1986 l e a d
constant
p r i c e time s e r i e s i n d i c a t e s t h a t t h e r a t e a t which p r i c e s become

more v a r i a b l e
The
i s f a i r l y h i g h as t h e l a g i n c r e a s e s
(FIGURE 19).
p r i c e s i n t h e time s e r i e s (FIGURE 18) i n d i c a t e a sequence o f
peaks
and t r o u g h s
which
do
not contain
dramatic
changes
LONDON METAL EXCHANGE ANNUAL LEAD PRICES

Current
1400
Constant
Prices
Prices
1200-1
c
w
1000
L.
800O)
600
to
-o
c
400-
O
Q-
200-
I' '"
1864
FIGURE 18.
1901
1918
d u n l i n
1935
Years
1952
1969
19B6
L o n d o n Metal E x c h a n g e a n n u a l a v e r a g e of m o n t h l y L E A D p r i c e s
f o r 1 8 8 4 to 1 9 8 6 in c o n s t a n t a n d c u r r e n t p o u n d s s t e r l i n g / m e t r i c
a w h o l e s a l e , p r o d u c e r price index with the b a s e 1984=100.
SEMI-VARIOGRAM OF LME ANNUAL LEAD PRICES

63000
CM
c
54000
t,
45000
Semi-variogram
Spherical Function
<-
36000
CO
27000
to
-D
c
18000
o
~
9000
12
i i i i i i i i i i i i i i i i r
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Lag years
:
FIGURE 19. S e m i - v a r i o g r a m of L M E c o n s t a n t a n n u a l L E A D p r i c e s f o r 1 9 5 4 to 1 9 8 6
T h e e x p e r i m e n t a l s e m i - v a r i o g r a m c a n be f i t t e d by a S P H E R I C A L
f u n c t i o n w i t h a S I L L (C) = 2 3 6 7 3 . 8 ( / t o n n e ) , N U G G E T E F F E C T ( C o ) =
2 0 0 0 . 0 ( V t o n n e ) a n d a R A N G E (a) = 5 . 0 y e a r s .
2
63
suggesting
Significantly
that
the
prices
the
'sill'
plus
v a r i a n c e o f the p r i c e
(pounds
are
the
moderately
'nugget
effect'
p o p u l a t i o n f o r t h i s time
sterling/tonne) ).
The
'nugget
variable.
equals
series
effect'
the
(25673.8
i s considered
as i m p l y i n g s l i g h t seasonal supply and demand e f f e c t s .

An
alternative
interpretation
to the lack
of
structural
c o r r e l a t i o n r e p r e s e n t e d by the experimental semi-variogram

the
5 t h l a g i s that
starting
a cycle
a t the 5 t h
lag.
o f approximately
This
apparent
after
4 years
occurs
periodicity
has not
investigated.
5.2.3
Lead: K r i g i n g ;
The
R e s u l t s 1954 t o 1986
spherical
semi-variogram
function
modelling
s t r u c t u r a l c o r r e l a t i o n o f p r i c e s i n t h e 1954 t o 1986 time

and
kriging
neighbourhoods
of
and
years
were
the
series
used
by
o r d i n a r y k r i g i n g t o estimate f u t u r e p r i c e s f o r t h e y e a r s 1955 t o
1986.
The
random
known p r i c e s ,
walk
price
the o r d i n a r y k r i g e d
forecasts
differences
the squared
differences
and
their
p r i c e e s t i m a t e s , the
respective
squared
The sums o f
and t h e i r percent r a t i o s , k r i g e d
versus
the random walk, a r e shown i n TABLE 5.

Future
universal
was f i t t e d
prices
kriging.
f o r 1966 t o 1986 were a l s o

A polynomial
curve
estimated
of order
using
2 (quadratic)
t o the p r i c e s o f the 1954 t o 1986 s e r i e s (FIGURE 2 0 ) .
The r e s i d u a l s , known p r i c e minus the curve f i t t e d p r i c e , (FIGURE

21,
APPENDIX
TABLE
3) were
64
calculated
and
an
experimental
LME 1954 TO 1986 ANNUAL CONSTANT LEAD PRICES

Constant Prices
1000
Quadratic
Curve
800
600
cn
400
o
o.
200
i i i i iiiii i
r
1933
1936
1939
1962
1969
1968
19/1
1974
1977
1980
1963
1986
Years
FIGURE 20.
London Metal Exchange constant 1954 to 1986 LEAD prices fitted with a
quadratic curve, -1961.3 + 65.1 T - 0.4 T.
RESIDUAL 1954 TO 1986 LME LEAD PRICES
i'r
19 3 3
19 9 6
19 9 9
19 6 2
19 6 3
19 6 6
1971
1974
19 77
19 8 0
19 8 3
Years
F I G U R E 21.
The constant LEAD price residuals for 1954 to 1986, the known prices
SEMI-VARIOGRAM OF LME 1954 TO 1986 LEAD PRICES

Seml-varlograoi
40000-1
S p h e r i c a l Function
1 1 1
1111111
*e..
e.
>..
FIGURE 2 2 - s i _
i d u a l s fitted by a SPHERICAL function,SILL(C) =
20118.4(ftonne),NUGGET EFFECT(Co)=4000.0(/tonne) and RANGE(a)=6.0years.
6 m
v a r i o g r a m
o f t
e r e s
65
semi-variogram
determined
(FIGURE 22,
s p h e r i c a l semi-variogram f u n c t i o n was
SILL
NUGGET EFFECT Co
RANGE
APPENDIX 2
fitted
least
double
sterling/tonne)
4000.0 (pounds
6.0
fitted
1986
'range' of
the
were
discussed
years.
curve.
used as s i x of the
model
needed
and
to
The
felt
adequately
Therefore, only
estimated.
i t was
the
estimation
years
that
represent
the
p r i c e s f o r 1966
procedures
have
at
to
been
previously.
The
universally
prices,
the
range was
quadratic
22).
sterling/tonne)
the
(FIGURE
= 20118.4 (pounds
A k r i g i n g neighbourhood o f 12 y e a r s was
represented
TABLE 7 ) .
the
kriged
random walk
differences
are
the
differences
squared
future
price
estimates
presented
and
the
i n APPENDIX 3
and
estimates,
appropriate
TABLE 8.
t h e i r percent
the
squared
The
ratios
are
known
sums of
shown i n
TABLE 5.
To
further
estimate
fitted
future
to
the
(FIGURE 23).
an
prices
1979
The
experimental
APPENDIX 2
test
the
to
1986
residuals
universal
k r i g i n g would not
best
(FIGURE 24,
'Pure Nugget
estimate
give
of
determined from the q u a d r a t i c

Prices
e q u a t i o n and
estimated
the
of
for
the
universal
order 2
lead
kriging
(quadratic)
price
time
residuals
This
(FIGURE
experimental
E f f e c t ' which
price
implied
was
the
was
and
25,
semithat
best p r i c e estimates,
future
to
series
APPENDIX 4 TABLE 4)
the
were c a l c u l a t e d .
exhibited
the
constant
semi-variogram
TABLE 8)
of
a polynomial o f
variogram
that
ability
but
price
equation.
1985
random walk, the

66
and
1986
from
known p r i c e s
the
and
quadratic
the
squared
L M E 1979 T O 1986 A N N U A L C O N S T A N T L E A D PRICES

C o n t l a n l Prices
Q u a d r a t i c Curve
00
600-
400
200-
o
a.
1978
FIGURE 2 3 .
1980
1982
1984
Years
London Metal Exchange constant 1979 to 1986 LEAD prices fitted with a
quadratic curve, 191973.8 - 3762.7 T + 18.6 T.
R E S I D U A L 1 9 7 9 T O 1986 L M E L E A D P R I C E S
100
CO
c
-so
-100
1978
FIGURE 24.
1980
1984
The constant LEAD price residuals for 1979 to 1986, the known prices
S E M I - V A R I O G R A M O F L M E 1973 T O 1986 L E A D PRICES
Semi-variogram
10000
Population
1962
Years
Variance
6000
0>
4000
2000
o
a.
FIGURE 2 5 .
Lag,years
Experimental semi-variogram of the residuals showing a PURE NUGGET

EFFECT.
67
1986
differences
the
squared
differences
and
the
percent
The
ratios
are
sums of
shown i n
TABLE 5.
The
r e s u l t s o f the sums of squared
differences
comparisons
between the random walk, o r d i n a r y
kriging, universal kriging
p o l y n o m i a l curve p r i c e e s t i m a t e s
(TABLE 5) f o r the 1954
to
and
1986
c o n s t a n t l e a d p r i c e time s e r i e s were:
1. O r d i n a r y k r i g i n g gave b e t t e r p r i c e s e s t i m a t e s over
the time s e r i e s i n v e s t i g a t e d
and u n i v e r s a l
2. The b e t t e r
than the random walk
k r i g i n g , percent r a t i o +
7.4%.
e s t i m a t e s of f u t u r e p r i c e s o c c u r r e d when
a k r i g i n g neighbourhood e q u i v a l e n t
of the s p h e r i c a l model was
used.
t o the
'range'
By i n c r e a s i n g
the
k r i g i n g neighbourhood from 5 t o 6 y e a r s the percent

r a t i o goes from + 7.4%
3a. U n i v e r s a l
3b.
3.9%.
k r i g i n g w i t h a neighbourhood o f 12 years
gave the worst

t o 1986
down t o -
f u t u r e p r i c e e s t i m a t e s f o r the
1966
time s e r i e s , p e r c e n t r a t i o -48.8%.
S i g n i f i c a n t l y universal
k r i g i n g u s i n g the
polynomial curve f i t t e d t o the 1954
t o 1986
s e r i e s gave the b e s t e s t i m a t e s f o r 1985
and
time
1986,
p e r c e n t r a t i o + 75.1%.
4. The
1985
and 1986
p r i c e e s t i m a t e s from the equation
of the q u a d r a t i c curve f i t t e d t o the 1979
to
1986
l e a d c o n s t a n t p r i c e time s e r i e s were worse

e s t i m a t e s than those from the random walk, percent
r a t i o - 4.4
%.
68
TABLE 5.
***
SUMS OF SQUARED DIFFERENCES LEAD * * *
Variable
: LEAD, London M e t a l Exchange
Deflator
: WHOLESALE,PRODUCER PRICE INDEX
ORDINARY
ORDINARY
UNIVERSAL
KRIGING
KRIGING
KRIGING
N = 5
N = 6
N = 12
RANDOM
WALK
YEARS
SUM
%
RATIO
N
m. t .
CURVE
FITTING
( /m. t . )
(/m.t.)
117934.7
140330.7
146074.6
465323.2
393855.6
440398.7
696358.7
3309.4
9044.9
23012.9
822.8
3455.3
586567.3
543231.2
609486.2
6899291.0
62898.8
1 9551 965
19661984
19851986
1984=100
(/m.t.)
+ 7.4
- 3.9
: K r i g i n g Neighbourhood>
: M e t r i c Tons.
69
( /m.t.)
- 48.8
(/m.t.)
- 4.4
5.2.4
Lead: K r i g i n g ;
Discussion
These r e s u l t s support t h e d i s c u s s i o n
p r e s e n t e d f o r copper.
Ordinary k r i g i n g i s generally better at estimating

than the random walk.
future
prices
Furthermore, when the v a r i a b i l i t y between
p r i c e s i n a time s e r i e s i s moderate and a k r i g i n g neighbourhood

equivalent
excels.
(FIGURE
t o the 'range' o f the model i s used o r d i n a r y

The experimental semi-variogram f o r l e a d ,
22), i n d i c a t e s
less
variability
kriging
1954 t o 1986
and a slower
rate of
change i n v a r i a b i l i t y than t h a t f o r copper, 1884 t o 1917 (FIGURE

7)
of
s u p p o r t i n g the c o n t e n t i o n
the f i t t e d
estimate.
model,
Again
when f o r e c a s t s
that
kriging
universal
neighbourhood
kriging
a r e over a l a r g e
when i t uses the curve
a r e l a t i v e l y smaller,
fitted
gives
gives
'range'
a
the worst
better
estimates
time s e r i e s , but i s v e r y
over the l a r g e
good
time t o estimate
p r i c e s a t t h e end o f t h a t s e r i e s .
5.3 Z i n c
For
the reasons
previously
discussed
t h e 1884
t o 1986
c o n s t a n t z i n c p r i c e time s e r i e s (FIGURE 26) was p a r t i t i o n e d i n t o

t h r e e regimes and l i k e
1986,
was i n v e s t i g a t e d .
lead only
Unlike
the l a s t
time s e r i e s ,
1954 t o
l e a d p r i c e s f o r t h i s time s e r i e s
constant z i n c p r i c e s i n d i c a t e d o u t l i e r s .
O u t l i e r s were
as
populations
those
prices
frequencies
For
zinc
which
occur
o f the p r i c e s
two c o n s t a n t
as separate
i n the time
prices
were
series
determined
(APPENDIX 5 TABLE 1 ) :
: 1973 1395.3 pounds
sterling/tonne
: 1974 1729.1 pounds
sterling/tonne.
70
were
defined
when the
determined.
t o be
outliers
Outliers
are s i g n i f i c a n t
contributors to non-stationarity
t h e r e f o r e these two p r i c e s were e x t r a c t e d from t h e p r i c e

and
the
smaller
determinations
data
s e t was
used
f o r ordinary kriging.
in
series
semi-variogram
For u n i v e r s a l k r i g i n g the
p r i c e s e r i e s used i n c l u d e d the o u t l i e r s .
5.3.1 Z i n c : Variography;
The
TABLE
experimental
semi-variogram
9) o f the constant
1986, without
a
Results
the o u t l i e r s ,
l a g of 6 years
experimental
variogram
zinc
where
(FIGURE
price
time
27, APPENDIX
series
f o r 1954 t o
i n c r e a s e d c o n t i n u o u s l y t o a peak a t
a constant
semi-variogram
level
was f i t t e d
with
was assumed.
This
a spherical
semi-
f u n c t i o n t o model the s t r u c t u r a l c o r r e l a t i o n o f p r i c e s
up t o a l a g o f 5.8 y e a r s . The semi-variances o f t h e experimental

semi-variogram
i n d i c a t e d e r r a t i c v a r i a b i l i t y between p r i c e s t h a t
were g r e a t e r than 6 y e a r s a p a r t .
SILL
5.3.2
(pounds s t e r l i n g / t o n n e )
NUGGET EFFECT Co =
0.0 (pounds s t e r l i n g / t o n n e )
RANGE
5.8 y e a r s .
'range'
o f 5.8 y e a r s o f the s p h e r i c a l
experimental
constant
rate
= 16655.9
Z i n c : Variography; D i s c u s s i o n
The
the
price
semi-variogram
time
series,
f o r t h e 1954 t o 1986
without
outliers,
a t which p r i c e s become more v a r i a b l e
i s h i g h (FIGURE 27).
little
variability
model f i t t e d t o
shows
zinc
t h a t the
as the l a g i n c r e a s e s
The p r i c e s i n t h i s pruned time s e r i e s show
as t h e r e
are no e x c e s s i v e peaks o r troughs

71
LONDON METAL EXCHANGE ANNUAL ZINC PRICES

C u r r e n t Prices
2100
Constant
Prices
1800
c
1500
^
1200
CO
c
900
CO
600
O
300
1884
1901
1918
1935
1986
1969
1952
Years
FIGURE 2 6 .
L o n d o n M e t a l E x c h a n g e a n n u a l a v e r a g e of m o n t h l y Z I N C p r i c e s
f o r 1 8 8 4 to 1986 i n c o n s t a n t a n d c u r r e n t p o u n d s s t e r l i n g / m e t r i c
a w h o l e s a l e , p r o d u c e r p r i c e index with the b a s e 1 9 8 4 = 1 0 0 .
SEMI-VARIOGRAM OF LME ANNUAL ZINC PRICES

20000
CN
c
.O
16000
Semi-variogram
-4
* I
12000
CO
c
e
oo
8000
4000-
-1
12
r-
r~
r-
18
15
Lag=y e a r s
21
24
27
30
FIGURE 2 7 . S e m i - v a r i o g r a m of L M E c o n s t a n t a n n u a l ZINC p r i c e s f o r 1 9 5 4 to 1 9 8 6 .
The e x p e r i m e n t a l s e m i - v a r i o g r a m c a n b e f i t t e d b y a S P H E R I C A L
f u n c t i o n w i t h a SILL (C) = 1 6 6 5 5 . 9 ( / t o n n e ) , N U G G E T E F F E C T ( C o ) =
0 . 0 ( f i / f o n n e ^ a n d a R A N G E (a) = 5 . 8 y e a r s .
z
72
(FIGURE 26).
The zero 'nugget e f f e c t ' i m p l i e s c o n t i n u i t y i n the
r e g u l a r i z a t i o n o f the monthly p r i c e s
up the annual
t h a t are averaged
prices.
The experimental semi-variogram
of the c o n s t a n t z i n c p r i c e s
i s v e r y sawtoothed a f t e r a l a g o f 6 y e a r s .
downward t r e n d i n the s e m i - v a r i a n c e s .
features resulted
assumption
is
experimental
from
made
as
the
from
The
between p r i c e s
further
are
5.3.3
prices
mining
is
data
This
likened
which
to
is
not
downward t r e n d i s c o n s i d e r e d a f u n c t i o n of
more
and
their
similar.
s p a c i n g , where p r i c e s
This
experimental
semi-
i s c o n s i d e r e d as being moderate t o h i g h l y v a r i a b l e .
Z i n c : K r i g i n g ; R e s u l t s 1954
The
I t i s assumed t h a t these
sawtoothedness
semi-variograms
apart
Also indicated i s a
u s i n g a data s e t c o n t a i n i n g gaps.
e v e n l y spaced.
variogram
t o make
spherical
w i t h i n the
(FIGURE 27)
and
model of the
1954
to
1986
to
1986
structural
time
correlation
series,
without
between
outliers,
a k r i g i n g neighbourhood o f 6 y e a r s were used
by
o r d i n a r y k r i g i n g t o estimate f u t u r e p r i c e s f o r the y e a r s 1955
to
1986.
The known p r i c e s , the k r i g e d p r i c e e s t i m a t e s and the random
walk p r i c e e s t i m a t e s and t h e i r squared d i f f e r e n c e s are presented
their
percent
ratios,
The sums of the squared d i f f e r e n c e s

k r i g e d versus
and
the random walk, are shown
i n TABLE 6.
For
universal
( l i n e a r ) was
outliers,
kriging
f i t t e d t o the 1954
(FIGURE
28).
polynomial
t o 1986
Residuals,
73
curve
of
order
p r i c e time s e r i e s ,
known
price
minus
with
curve
LME
1954 T O 1 9 8 6 A N N U A L C O N S T A N T Z I N C P R I C E S
Conitant Priest
2000
Linear C u r v e
1600
1200
800
400-
1993
1936
1999
1969
1962
1968
1971
1974
1977
1980
1986
1983
Years
FIGURE 2 8 .
London Metal Exchange constant 1954 to 1986 ZINC prices fitted with a
linear curve, +479.4 + 1.9 T.
RESIDUAL 1954 T O 1986 L M E ZINC PRICES
1100-1
1000e
0
H>
u
900800700-
<
c
600300400-
300-
vt
200-
TJ
100-
C
3
O
0-
a.
-100-200-3001993
1996
196 2
19 6 3
19 6 8
1971
1974
19 7 7
1981
'
1*83
1986
Years
FIGURE 29.
140000-
9 39
The constant ZINC price residuals for 1954 to 1986, the known prices
minus the linear curve prices.
S E M I - V A R I O G R A M O F L M E 1954 T O 1986 Z I N C PRICES
Seml-varlogram
120000
n
TJ
C
3
O
60000-
40000-
20000-
r~
12
FIGURE 3 0 .
13
24
Lagiyeart
Co
7
j_variogram
th residuals fitted by a SPHERICAL function,SILL(C)=
90370.0(ytonne),NUGGET EFFECTCCo^SOOO.OCVtonne) and RANGE(a)=6.0years.
S e m
o f
74
fitted
price,
experimental
APPENDIX
variogram
(FIGURE
29,
APPENDIX
semi-variogram
TABLE
10)
function
were
was
of
the
TABLE
residuals
calculated.
fitted
to
5)
the
and
the
(FIGURE
30,
spherical
semi-
experimental
semi-
variogram.
SILL
= 90370.0 (pounds
NUGGET EFFECT Co =
RANGE
5000.0 (pounds
sterling/tonne)
sterling/tonne)
6.0 y e a r s .
U s i n g the model and a k r i g i n g neighbourhood o f 12 y e a r s

were k r i g e d
fo the years
neighbourhood
and
was
used
1966 t o 1986.
to incorporate
This
prices
size of kriging
the f i t t e d
linear
drift
a l l o w i t t o a f f e c t the k r i g i n g e s t i m a t e s .
It
was
residuals
noted
that
the experimental
(FIGURE 30) showed a downward
lag
period,
7 years.
was
the r e s u l t of increasing
trend
The s u g g e s t i o n t h a t
similarity
apart
was a l s o proposed f o r t h i s case.
this
was
the case
semi-variogram
as
the r e s i d u a l s
o f the
after a specific
t h i s downward
between p r i c e s
trend
further
I t was e a s i l y seen t h a t
(FIGURE
29)
showed
more
v a r i a b i l i t y over s h o r t p e r i o d s than over l o n g e r ones.

The
prices
universal
and t h e i r
kriged
squared
future
price
differences
estimates,
and those
o f the simple
random walk a r e presented i n APPENDIX 3 TABLE 11.

the squared d i f f e r e n c e s
percent
ratios,
kriged
the known
The sums o f
f o r the time s e r i e s 1966 t o 1986 and the

versus
the random
walk,
are shown i n
TABLE 6.
A p o l y n o m i a l curve o f order 2 ( q u a d r a t i c )
1974
t o 1986
series
constant
(FIGURE 31).
zinc
prices
The r e s i d u a l s
75
was f i t t e d t o the
o f the 1954
t o 1986
time
(FIGURE 32, APPENDIX 4 TABLE
L M E 1974 T O 1986 A N N U A L
197-4
197*
1978
CONSTANT
i960
ZINC
I9S2
PRICES
198-4
Years
London Metal E x c h a n g e constant 1974 to 1986 ZINC p r i c e s f i t t e d with a
q u a d r a t i c c u r v e , 155148.3 - 3131.7 T + 15.8 T.
FIGURE 31.
RESIDUAL
1974 T O 1986 L M E Z I N C
PRICES
-400-1
-3001974
FIGURE 32.
1976
1978
I960
19*2
1964
1986
Years
The constant ZINC price residuals for 1974 to 1986, the known p r i c e s
minus the q u a d r a t i c c u r v e p r i c e s .
S E M I - V A R I O G R A M O F L M E 1974 T O 1986 Z I N C P R I C E S
Seml-varlogram
36000-
Population V a r i a n c e
%
30000-
24000-
18000-
12000-
6000-
FIGURE 3 3 .
ID
Logiyeart
E x p e r i m e n t a l s e m i - v a r i o g r a m of the residuals showing a PURE NUGGET
EFFECT.
76
6) and the experimental

33,
APPENDIX
2 TABLE
semi-variogram
11) were
semi-variogram
exhibited a
that
estimate
the b e s t
o f the r e s i d u a l s (FIGURE
calculated.
This
'Pure Nugget E f f e c t '
of a
future price
experimental
which i m p l i e d
would not be
from
k r i g i n g , but from t h e q u a d r a t i c e q u a t i o n .
Prices
1986,
t h e random
related
12.
estimated
squared
The
sums
from
walk
the q u a d r a t i c e q u a t i o n
estimates,
differences
t h e known
a r e presented
o f t h e squared
f o r 1985 and
prices
and t h e
i n APPENDIX 3 TABLE
differences
and t h e i r
percent
r a t i o s a r e i n TABLE 6.
The
results
comparisons
of
t h e sums
f o r f u t u r e constant
of
zinc
the squared
price
differences
estimates
f o r the
y e a r s 1966 t o 1986 were:

1. O r d i n a r y k r i g i n g gave b e t t e r f u t u r e p r i c e
over the whole p e r i o d estimated, p e r c e n t
estimates
ratio
+ 2.2%, but the random walk was b e t t e r from 1966

t o 1972, p e r c e n t r a t i o - 78.1 %.
2. U n i v e r s a l k r i g i n g was worse a t e s t i m a t i n g f u t u r e
p r i c e s than the random walk f o r whatever p e r i o d
c o n s i d e r e d , percent r a t i o - 53.4%.
3. The p r i c e s from the q u a d r a t i c e q u a t i o n o f the curve
f i t t e d t o the 1974 t o 1986 c o n s t a n t z i n c p r i c e
s e r i e s were not the worst e s t i m a t e s o f 1985 and
1986 p r i c e s v e r s u s the random walk (TABLE 6
u n i v e r s a l k r i g i n g ) , percent r a t i o - 132.8%, but
s u r p r i s i n g l y o r d i n a r y k r i g i n g was the b e t t e r
e s t i m a t o r , percent r a t i o + 20.9%.
77
time
T A B L E 6.
***
SUMS OF SQUARED D I F F E R E N C E S
Variable
: ZINC, London M e t a l E x c h a n g e
Deflator
: WHOLESALE,PRODUCER P R I C E INDEX
RANDOM
WALK
YEARS
1 9551 965
125728.0
1 9661 972
15855.0
1 9731975
1370681.5
1 9761 1 4565.3
1 984
1 9851 986
20401.6
SUM
%
1647231.4
RATIO
N
m. t .
(/m.t.)
1984=100
ORDINARY
UNIVERSAL
KRIGING
KRIGING
N = 12
N = 6
RANDOM
WALK
( /m. t . )
ZINC ***
(/m.t.)
125728.0
124842.6
15855.0
28240.9
OUTLIERS
(/m.t.)
30966.0
2012387.4
POLYNOMIAL
CURVE
FITTING
2
(/m.t.)
--
114565.3
101237.4
348563.2
2 0 4 0 1 .6
16128.5
134738.3
47491.6
276549.9
270449.4
2526654.9
47491.6
+ 2.2
: K r i g i n g Neighbourhood
: M e t r i c Tons.
78
- 53.4
- 132.8
5.3.4
Zinc: Kriging;
Again ordinary
of
future
prices
Discussion
kriging
than
i s the random walk
k r i g i n g i s the worst.
i n estimating
is
a result
increases
and
i s supported as a b e t t e r
Universal
and again
k r i g i n g i s not even
the 1985 and 1986 p r i c e s as p r e v i o u s l y

o f the type
over
o f curve
fitted,
w h i l e the a c t u a l
universal
vindicated
shown.
This
as the l i n e a r model
time because o f the i n f l u e n c e
1974 p r i c e s
estimator
of the high
1973
p r i c e has decreased f o r those
years.
S i n c e o n l y one k r i g i n g neighbourhood (N=6) i s i n v e s t i g a t e d
no
specific
remarks
appropriate k r i g i n g
the
rate
intervals
that
price
can be
addressed
t o the s u b j e c t
neighborhood t o use.
variability
and the v a r i a b i l i t y
increases
I t i s suggested
with
therefore
that
increasing lag
shown i n the 1954
t o 1986
c o n s t a n t p r i c e time s e r i e s imply a moderate t o h i g h

and
o f the
zinc
variability
the a p p r o p r i a t e k r i g i n g neighbourhood i s s l i g h t l y
l a r g e r than the 'range' o f the s p h e r i c a l model.
5.4 Summary
Market
factors
geostatistical
each
The
and
the requirement
applications
were
1884 t o 1986 metal p r i c e
of
stationarity for
the reasons
for partitioning
time
series
into
three
regimes.
p a r t i t i o n e d regimes were 1884 t o 1917, 1918 t o 1953 and 1954
t o 1986.
Only f o r copper were a l l t h r e e regimes i n v e s t i g a t e d
as
they r e p r e s e n t e d d i f f e r e n t environments and p r e s e n t e d d i f f e r e n t

problems
prices.
lead
that
were
comparable
being
based
on
copper
constant
With t h i s f o u n d a t i o n the subsequent i n v e s t i g a t i o n s
and z i n c
constant
price
time
79
series
were
limited
into
t o the
1954
to
1986
time
investigations
investigate
constant
for
was
series.
Another
reason
that
purpose
of
estimating
price
estimating
times
the
future
series
prices
prices
the
and
investigations
i n 1987
and
to
beyond.
limit
these
thesis
the
1954
laid
the
was
to
to
1986
framework
S i g n i f i c a n t t o the
z i n c c o n s t a n t p r i c e time s e r i e s i n v e s t i g a t e d
was
the occurrence
of o u t l i e r s and t h e i r treatment.
Spherical
experimental
Effect'.
semi-variogram
semi-variograms
the s p h e r i c a l
sawtoothed
d i d not
habit
the metals
increase to a ' s i l l '
model.
fitted
show a
to
'Pure
Nugget
showed a
v a l u e over the
T h i s smoothness was
those
'range'
c o n t r a s t e d t o the
expressed by experimental semi-variograms
miming d a t a and was

in
that
were
In a l l cases the experimental semi-variograms
smooth, not e r r a t i c ,
of
functions
from
r e l a t e d t o the even s p a c i n g and l a c k o f gaps
constant p r i c e
time
series.
The
'sill'
'range' o f the s p h e r i c a l models were r e l a t e d t o the
and
the
variability
shown by the p r i c e s i n the time s e r i e s w i t h the d i f f e r e n t metals

and time s e r i e s g i v e n d i f f e r e n t
Copper, 1918
t o 1953,
Lead, 1954 t o 1986,

Copper, 1884
Zinc,
1954
Copper, 1954
These
subjective
variability
low
moderate v a r i a b i l i t y
moderate t o h i g h v a r i a b i l i t y
t o 1986,
high v a r i a b i l i t y .
designations
between
prices
variability
low t o moderate v a r i a b i l i t y
t o 1917,
t o 1986,
classifications:
and
expressed
allowed
the
degree
relationships
of
to
be
developed between the p r i c e time s e r i e s the s p h e r i c a l models and

the
kriging
results.
the
residuals
from
Not
fitting
unexpectedly the s p h e r i c a l
models o f
polynomial curves t o the p r i c e

80
time
s e r i e s were s i m i l a r i n shape and
value to
the
of the o r i g i n a l constant p r i c e time s e r i e s .

was
the
experimental
semi-variograms
f i t t i n g p o l y n o m i a l curves t o the
to
1986
time
reason
for
series
this
p r i c e s used i n f i t t i n g
on the
was
estimates
studied.
than
'Pure
related
estimation
This
estimates
residuals
Nugget
to
the
from
1954
Effects'.
limited
The
number
of
depending
It
the
was
suggested t h a t
neighbourhood
one.
developed
ordinary
walk
over
give
to
be
1918
special
with
variable
equal
larger
were
used
to
Universal
estimates. This
variability
series
estimate
price
kriging
time
ordinary
the
Highly
better
price
time
results
a small
kriging
estimates
than
factors
function
ordinary
spherical
variable
prices
using
'range' of the
For
kriging
model
prices
required
were
neighbourhoods.
series
of
future
future
kriging
when w e i g h t i n g
range
suggested.
neighbourhood l a r g e r than the

allow ordinary
of
constant
semi-variogram
in
the
case
ordinary
future
small
prices
to
the
occurred
very
time
random walk gave
1953
low
better
theoretical
and
to
because
Confirmation
the
future
simple random walk method of
found
obvious
kriging
series
the
copper
would
neighbourhoods
slightly
random
for prices
for
moderately
found t o g i v e b e t t e r
became obvious when the
for
series.
was
generally
the
Interestingly
kriging.
time
the
metal.
price
large
of
unexpected
the curves, from 8 t o 14 p r i c e s
O r d i n a r y k r i g i n g was
price
What was
models
sequences of p r i c e s i n the
exhibiting
effect
spherical
in
or
a
kriging
s p h e r i c a l model t o
k r i g i n g t o g i v e an adequate e s t i m a t e .
kriging
produced
i n a b i l i t y was
the
worst
thought t o be
81
future
r e l a t e d t o the
price
type
of
curve
the
drift
fitting
technique used
semi-variogram
i s required
i s required
t o determine
and the c i r c u l a r
problem
t o e s t i m a t e the d r i f t
the semi-variogram.
that
and the
Universal
k r i g i n g stands out when used t o e s t i m a t e f u t u r e p r i c e s near the

end o f the time s e r i e s ,
s p e c i f i c a l l y when a q u a d r a t i c o r h i g h e r
o r d e r p o l y n o m i a l curve was f i t t e d
82
t o the whole time s e r i e s .
6.
CONCLUSIONS
T h i s study i s an attempt t o apply g e o s t a t i s t i c a l methods t o

estimate future p r i c e s .
estimate
future
is
between
made
estimated
from
prices
To t e s t the a b i l i t y o f g e o s t a t i s t i c s t o
a sum o f squared d i f f e r e n c e s
the kriged
a simple
estimations
random walk.
comparison
and t h e f u t u r e
The c o n c l u s i o n s
prices
of t h i s
study a r e :
1. The s t r u c t u r a l c o r r e l a t i o n between metal p r i c e s i n a
historical
time s e r i e s can be r e p r e s e n t e d by a one-
dimensional experimental semi-variogram and f i t t e d w i t h

a t h e o r e t i c a l semi-variogram
function.
2. Future metal p r i c e s can be f o r e c a s t by t h e

g e o s t a t i s t i c a l technique o f k r i g i n g .
ordinary
kriging generally
I n t h e t e s t s done
gives better estimates of
f u t u r e p r i c e s than does a simple random walk.
3. The r e s u l t s o b t a i n e d from t h i s study a r e encouraging

and
further i n v e s t i g a t i o n s i n to applying
geostatistics
t o metal p r i c e f o r e c a s t i n g are warranted.
6.1
F u r t h e r Work
Areas o f i n v e s t i g a t i o n t h a t are o f i n t e r e s t :
- How a c c u r a t e l y
can d a i l y p r i c e s be f o r e c a s t and from
d a i l y p r i c e s e r i e s can weekly, monthly and y e a r l y

be
accurately
forecast ?
This question also applies to
u s i n g weekly and monthly p r i c e s e r i e s .

83
prices
- How
would t r a n s f o r m i n g the p r i c e s s e r i e s
normalizing
forecasts
their distributions effect
the o u t l i e r e f f e c t how
o f t r e a t i n g the o u t l i e r s by t r u n c a t i o n
forecasts
would the
or
results
transformation
- Would t e s t i n g the parameters of the

semi-variogram f u n c t i o n s
s e r i e s and
the
- Having s t u d i e d
a f f e c t the
by
fitted theoretical
by f o r e c a s t i n g p r i c e s w i t h i n
determining the e r r o r o f e s t i m a t i o n
the
improve
the models ?
- Would f o r e c a s t i n g the p r i c e s f u r t h e r i n t o the
one
p e r i o d be more a c c u r a t e i f the p r e c e d i n g
p r i c e was
included
future
than
forecast
i n the k r i g i n g neighbourhood ?
- Having j u s t touched on the aspects of r e l a t i n g w e i g h t i n g

f a c t o r s , k r i g i n g neighbourhoods, t h e o r e t i c a l
semi-variogram f u n c t i o n s
and
k r i g i n g methods t o
the
n e a r e s t p r i c e f o r e c a s t s , expand the study i n t o t h i s area.
6.2
Forecasting
Based on
London Metal
(TABLE 7 ) .
and
1988
the
1987
and
1988
Prices
r e s u l t s of t h i s study p r i c e s are
Exchange copper,
I t must be
lead
and
zinc
out
that
the
pointed
for
1987
forecasts
are d e f l a t e d o r constant p r i c e s r e f e r e n c e d
84
forecast
to
for
and
1988
for
1987
1984.
TABLE 7.
***
LONDON METAL
1987 AND 1988 METAL
PRICE FORECASTS * * *
EXCHANGE:
COPPER:
: Time S e r i e s ,
YEARLY;
1954 TO 1986
: RANDOM WALK:
: FORECASTS; Y e a r
Price
Error
/tonne
1987
1988
849.4
849.4
: ORDINARY KRIGING: K r i g i n g
: SPHERICAL M o d e l ;
490.3
490.3
Neighbourhood
SILL
14 y e a r s .
C
= 805818.7
; NUGGET EFFECT Co =
; RANGE
a =
Price
1987
1988
990.2
1121.4
: UNIVERSAL KRIGING: K r i g i n g
: SPHERICAL M o d e l ;
1987
1988
740.4
1032.6
: Time S e r i e s ,
YEARLY;
: QUADRATIC EQUATION;
= 805818.7
(/tonne)
0.0 ( / t o n n e )
13.8 y e a r s .
Kriging
/tonne
185572.6 - 3692.8 T + 18.5 T

Price
/tonne
1987
1988
1221.4
1387.4
85
Error
590.1
724.7
1973 t o 1986
Error
15 y e a r s .
; RANGE
a =
Price
0.0 ( / t o n n e )
13.8 y e a r s .
412.0
574.7
Kriging
/tonne
Neighbourhood
SILL
(/tonne)
TABLE 7. cont'd
.*** 1 987 AND 1988 METAL PRICE FORECASTS ***
LONDON METAL EXCHANGE:
LEAD:
: Time S e r i e s , YEARLY; 1954 TO 1986
: RANDOM WALK:
: FORECASTS; Year
Price
Error
/tonne
1987
1988
251.1
251.1
: ORDINARY KRIGING: K r i g i n g Neighbourhood

: SPHERICAL Model; SILL
133.3
133.3
5 years.
C
= 23673.8 ( / t o n n e )
; RANGE
a
: FORECASTS; Year
Price
1987
1988
Kriging
/tonne
266.9
261.5
Price
1987
1988
155.7
141.5
=20118.4
(/tonne)
4000.0 ( / t o n n e )
6.0 y e a r s .
Kriging
/tonne
191973.8 - 3762.8 T + 18.6 T
: FORECASTS; Year
1987
1988
Price
/tonne
1384.8
1500.9
86
Error
160.4
198.3
: Time S e r i e s , YEARLY; 1979 t o 1986

: QUADRATIC EQUATION;
Error
12 y e a r s .
; RANGE
a =
: FORECASTS; Year
129.4
168.0
: UNIVERSAL KRIGING: K r i g i n g Neighbourhood

: SPHERICAL Model; SILL
2000.0 ( / t o n n e )
5.0 y e a r s .
TABLE
***
1987
AND 1988
7.
cont'd
METAL PRICE
FORECASTS
***
LONDON M E T A L E X C H A N G E :
ZINC:
:
Time
Series,
RANDOM W A L K :
:
YEARLY;
FORECASTS;
1954
TO
1986
Year
Price
Error
1987
1988
:
ORDINARY
:
KRIGING:
465.9
465.9
Kriging
SPHERICAL M o d e l ;
;
;
FORECASTS;
FORECASTS;
Series,
(/tonne)
NUGGET E F F E C T
RANGE
Co =
a
=
0.0
5.8
(/tonne)
years.
Kriging
QUADRATIC EQUATION;
12
NUGGET E F F E C T
RANGE
Co =
a
480.2
486.8
1974
to
155148.3
years.
= 90370.0
5000.0
6.0
Kriging
/tonne
3131.7
Year
1987
1988
Price
/tonne
837.5
1017.5
87
(/tonne)
(/tonne)
years.
Error
288.4
353.2
1986
-
Error
89.5
123.0
SILL
1987
1988
Kriging
/tonne
Neighbourhood
Price
YEARLY;
FORECASTS;
16655.9
Year
Time
465.3
449.4
years.
1987
1988
;
;
SILL
Price
SPHERICAL M o d e l ;
214.7
214.7
Neighbourhood
Year
UNIVERSAL KRIGING:
/tonne
T +
15.8
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1949. pp. 150 - 166.
1958.
"A Theory o f A n t i c i p a t o r y P r i c e s " . American

Economic Review, Papers and Proceedings,
V o l . 48, No. 2, May 1958. pp. 188 - 199.
1960.
"Note on the C o r r e l a t i o n o f F i r s t D i f f e r e n c e s
o f Averages i n a Random Chain".
Econometrica, V o l . 28, No. 4. pp. 916 - 918.
IAglom (Yaglom) A.M.,
Yule G.U.,
1921.
1962.
An I n t r o d u c t i o n t o the Theory of
S t a t i o n a r y Random F u n c t i o n s .
P r e n t i c e H a l l , New J e r s e y . 235 pp.
"On the T i m e - C o r r e l a t i o n Problem, With

E s p e c i a l Reference t o the V a r i a t e - D i f f e r e n c e
C o r r e l a t i o n Method". J o u r n a l o f the Royal
S t a t i s t i c a l S o c i e t y , V o l . 84, P a r t 4. pp.
498 - 526. D i s c u s s i o n pp. 526 - 537.
, 1926.
"Why Do We Sometimes Get Nonsense C o r r e l a t i o n s

Between Time S e r i e s ? " .
J o u r n a l of the Royal
S t a t i s t i c a l S o c i e t y , V o l . 89, P a r t 1. pp. 1
64.
D i s c u s s i o n pp. 64 - 69.
1927.
"On a Method o f I n v e s t i g a t i n g P e r i o d i c i t i e s i n
D i s t u r b e d S e r i e s , With S p e c i a l Reference t o
Wolfer's Sunspot Numbers". P h i l o s o p h i c a l
T r a n s a c t i o n s of the Royal S o c i e t y of London,
Sect. A, V o l . 226.
pp. 267 - 298.
96
A P P E N D I X
LME
CURRENT
P R I C E S
AND
WHOLESALE
97
P R I C E
INDEX
TABLE
***
CURRENT
Metal
Prices
Price
Index
Time
Series,
METAL PRICES
From
: GREAT
YEARLY
COPPER
(/tonne)
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
53.024
42.862
39.450
45.294
80.275
48.947
53.406
50.654
44.937
43.084
39.729
42.300
46.163
48.353
51.010
72.523
72.462
65.925
51.631
57.054
57.953
68.368
85.903
85.633
58.956
57.804
56.153
55.089
71.790
67.256
60.552
71.386
114.226
122.919
113.705
89.362
95.940
68.261
61.142
64.800
62.152
60.942
AND W H O L E S A L E , P R O D U C E R P R I C E
: GREAT B R I T A I N ,
From
TIME
(Year)
1.
1884
LEAD
( /tonne)
11.122
11.318
13.029
12.344
13.353
12.134
13.004
12.098
10.313
9.539
9.321
10.326
11.118
12.172
12.778
14.697
16.719
12.323
11.084
11.396
11.794
13.502
17.096
18.733
13.227
12.836
12.716
13.749
17.646
18.447
18.775
22.555
30.864
30.018
29.625
28.138
37.234
22.393
23.716
23.766
33.877
35.854
INDEX
LONDON M E T A L E X C H A N G E
BRITAIN
to
1986
ZINC
( /tonne)
14.218
13.775
14.029
14.960
17.802
19.467
22.883
22.887
20.500
17.129
15.185
14.377
16.330
17.216
20.115
24.465
19.954
16.760
18.252
20.639
22.234
25.031
26.593
23.396
19.845
21.835
22.686
24.882
26.004
22.387
22.188
66.486
70.933
51.585
53.324
42.202
43.671
25.437
29.529
32.536
33.195
36.046
98
WHOLESALE P R I C E
1984=100
3.2
3.0
2.8
2.7
2.8
2.9
2.9
3.0
2.8
2.8
2.6
2.5
2.4
2.5
2.6
2.5
2.8
2.7
2.7
2.7
2.7
2.7
2.8
2.9
2.9
2.9
3.0
3.0
3.2
3.2
3.2
4.0
5.2
6.7
7.4
8.2
10.2
6.6
5.3
5.3
5.5
5.3
INDEX
TABLE
***
CURRENT METAL PRICES
Metal
Prices
Price
Index
Time
Series,
From
1.
cont'd
From
1884 t o
1986
TIME
(Year)
COPPER
( /tonne)
LEAD
( /tonne)
ZINC
( /tonne)
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
57.055
54.774
62.697
74.225
53.748
37.638
31.182
32.010
29.. 8 0 3
31.364
37.834
53.605
40.064
42.015
61.021
61.021
61.021
61.021
61.021
61.021
75.951
128.478
131.883
130.938
175.958
216.881
255.377
252.227
245.411
346.712
323.883
216.173
194.721
234.076
242.118
226.162
230.402
231.067
347.305
462.453
545.713
410.746
30.584
23.810
20.727
22.879
17.791
12.753
11.725
11.486
10.762
14.013
17.321
22.958
15.025
14.475
24.605
24.605
24.605
24.605
24.605
27.341
47.252
83.657
93.992
101.560
104.735
159.486
134.594
90.051
94.926
104.192
114.476
95.113
71.633
69.661
71.006
63.198
55.399
62.436
99.651
113.184
93.647
82.440
33.566
28.063
24.885
24.398
16.308
12.022
13.331
15.419
13.441
13.860
14.684
21.906
13.769
13.653
25.343
25.343
25.343
25.343
25.343
28.355
42.183
68.894
78.766
86.134
117.376
168.979
147.052
73.520
77.030
89.236
96.170
80.292
64.859
80.934
87.886
76.501
66.393
75.492
116.259
111.117
100.381
98.843
: GREAT B R I T A I N
YEARLY
99
INDEX
WHOLESALE P R I C E
1984=100
4.9
4.7
4.9
4.5
4.0
3.5
3.4
3.4
3.5
3.5
3.7
4.3
4.0
4.1
5.4
6.1
6.3
6.5
6.6
6.7
7.0
7.6
8.7
9.1
10.4
12.6
13.0
13.0
13.1
13.4
14.0
14.5
14.6
14.6
14.8
15.2
15.5
15.7
16.2
16.8
17.2
17.4
TABLE
***
CURRENT METAL P R I C E S
Metal
Prices
Price
Index
Time
Series,
From
1.
cont'd
From
: GREAT
YEARLY
1884
to
1986
COPPER
( /tonne)
LEAD
( /tonne)
ZINC
( /tonne)
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
515.699
611.441
578.616
444.430
427.960
726.820
877.000
556.810
782.400
750.250
710.500
936.198
941.334
864.612
846.734
1049.340
1032.684
1104.404
936.918
100.188
120.762
124.430
103.790
120.580
174.340
252.480
185.380
250.440
353.790
342.500
566.415
390.702
362.172
310.710
280.294
332.073
303.598
276.982
109.419
119.236
121.175
126.960
150.900
344.630
527.380
335.340
394.600
337.760
308.790
349.989
326.887
423.473
425.108
505.051
667.837
594.660
513.934
BRITAIN
TIME
(Year)
INDEX
100
WHOLESALE P R I C E
1984=100
18.1
18.8
20.1
21.9
23.0
24.7
30.5
37.9
44.4
53.2
58.0
65.1
75.7
82.9
89.3
94.2
100.0
105.5
110.3
INDEX
***
APPENDIX 2
EXPERIMENTAL
SEMI-VARIOGRAMS
101
TABLE
***
1.
EXPERIMENTAL SEMI-VARIOGRAM
* * *
Variable
: COPPER, London M e t a l E x c h a n g e , FIGURE
6.
Deflator
: W H O L E S A L E , P R O D U C E R P R I C E INDEX 1 9 8 4 = 1 0 0
Time
S e r i e s : Y E A R L Y , 1884 t o 1917
Population
Mean
:
:
34
Variance
191418.0
Lag
Spacing:
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
1 2
13
1 4
1 5
1 6
17
18
19
20
21
22
23
24
25
26
27
28
29
30
2026.0
pounds;
(
sterling/tonne
/tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
1 6
15
1 4
13
12
1 1
10
9
8
7
6
5
4
Number
of
SEMI- VARIANCE
(
/tonne)
94658.6
149283.2
191657.7
200319.8
176591.8
152554.4
155479.6
188183.8
223833.1
252978.9
216007.5
231595.2
247402.2
310539.6
298230.6
252841.7
197793.1
176026.4
170829.0
271355.6
298789.2
281585.6
202857.1
85455.5
97434.0
137215.7
189453.0
126065.8
188902.7
103399.8
102
Lags:
30
CO-VARIANCE
2
/tonne)
102984.0
46798.7
1806.6
-3301.6
16058.2
45379.8
48139.0
18876.3
-13845.6
-40760.0
- 1 2 0 4 8 .8
-38375.9
-46445.3
-100264.7
-73305.1
-40872.8
16420.3
39737.6
45709.1
-45783.6
-58063.0
-40816.1
-22160.8
36440.7
24450.0
-13856.2
-58795.3
44988.4
-22345.1
-12093.3
TABLE
***
EXPERIMENTAL
2.
SEMI-VARIOGRAM
***
Variable
7
Deflator
: W H O L E S A L E , P R O D U C E R P R I C E I N D E X 1984=100
T i m e S e r i e s : Y E A R L Y , 1918 t o 1953
Population
Mean
36
Variance
92100.0
La-g S p a c i n g :
1 YEAR
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1215.5
NUMBER
PRICE
OF
PAIRS
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
1 1
10
9
8
7
6
pounds
(
sterling/tonne
/tonne)
Number
of
SEMI-VARIANCE
(
/tonne)
18926.3
38249.6
47571 . 3
58426.8
68194.7
80140.2
91868.2
99234.6
103853.5
93097.4
85568.2
92143.6
102269.6
115436.7
123037.4
1 30280.1
132562.7
118722.4
112015.8
111145.7
95509.4
76216.2
70884.9
81576.2
115300.5
145936.2
172365.5
182420.5
172495.6
194257.6
103
Lags:
30
CO-VARIANCE
2
/tonne)
68602.0
42552.3
30700.2
18320.7
10152.5
-940.9
-13832.0
-18693.4
-22132.1
-9352.4
-125.1
-10559.4
-19384.2
-29295.5
-34907.6
-40124.3
-39400.2
-22338.8
-14023.3
-13035.1
5132.6
26343.2
37871.7
35222.9
7288.1
-12874.3
-29076.0
-24031 .7
12834.2
-7747.8
TABLE
***
EXPERIMENTAL
3.
SEMI-VARIOGRAM
***
Variable
8.
Deflator
: WHOLESALE,PRODUCER P R I C E INDEX 1984=100
Population
Mean
1848.0
Variance
499230.0
Lag
Spacing:
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
12
1 3
1 4
1 5
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
33
pounds
sterling/tonne
( / t o n n e )
1 YEAR
NUMBER
PRICE
Number
OF
PAIRS
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
1 1
10
9
8
7
6
5
4
3
of
SEMI-VARIANCE
( / t o n n e )
123960.5
243139.4
252501.4
263849.9
356830.0
492956.7
579598.1
621979.5
677755.0
738866.7
840594.1
923690.6
805818.7
718542.7
793695.1
842334.1
705501.0
516587.9
484058.6
496782.6
319648.2
253750.9
223598.9
246611.0
314543.5
414774.1
472989.5
509905.5
626201.6
870579.5
104
Lags:
30
CO-VARIANCE
2
/tonne)
387411 . 1
262948.8
257685.7
252023.6
153094.4
16455.6
-63190.3
-95767.6
-147470.6
-201291.8
-280928.0
-349403.4
-246176.3
-158316.2
-214899.7
-264536.4
-145386.4
-747.4
11190.8
-26230.7
21255.7
20404.6
49959.7
67837.4
35475.5
-3220.6
3253.2
39876.6
31090.0
-2744.9
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Population
Mean
Variance
Lag
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
1 2
13
14
1 5
1 6
17
18
19
20
21
22
23
24
25
26
27
28
29
30
RESIDUALS
* * *
COPPER, London M e t a l E x c h a n g e , FIGURE 11.

WHOLESALE,PRODUCER P R I C E INDEX 1984=100
Y E A R L Y , 1954 t o 1986
QUADRATIC
33
0.0
270392.6
Spacing:
LAG
4.
pounds
sterling/tonne
( /tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
1 5
14
13
12
1 1
10
9
8
7
6
5
4
3
Number
SEMI-VARIANCE
( /tonne)
122493.4
243422.0
252604.9
250361.3
310814.2
406249.7
444600.9
427318.7
393837.0
352144.2
376283.4
369987.4
282948.8
212404.8
232657.7
258253.9
180671.1
77065.5
96026.4
167634.1
199550.6
264642.6
309654.6
282617.6
284958.2
307845.2
305664.8
256921 . 0
151674.5
83933.3
105
of
Lags:
30
CO-VARIANCE
( /tonne)
158597.8
27147.6
21325.4
30961 . 0
-29351.4
-123004.7
-157363.3
-138170.8
-109734.0
-74664. 1
-89383.7
-81993.5
-4671 . 5
69986.0
53393. 1
16931 . 2
93669.1
186848.7
171448.2
82672.6
-12399.5
-88263.2
-118399.5
-94647.8
-110553.4
-143844.8
-137300.7
-85656.5
-26511 .7
25234.3
TABLE
***
EXPERIMENTAL
Variable
Deflator
Time
Series
Polynomial
Population
Mean
Variance
Lag
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
12
13
SEMI-VARIOGRAM
RESIDUALS
* * *
C O P P E R , L o n d o n M e t a l E x c h a n g e , F I G U R E 14,
W H O L E S A L E , P R O D U C E R P R I C E INDEX 1 9 8 4 = 1 0 0
Y E A R L Y , 1973 t o 1986
QUADRATIC
13
0.0
62998.6
Spacing:
5.
pounds
sterling/tonne
( /tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
13
12
1 1
10
9
8
7
6
5
4
3
2
1
Number
of
SEMI-VARIANCE
( /tonne)
73163.2
67129.1
52529.7
71299.5
59417.8
59171.0
69646.1
82103.9
64430.2
79313.0
54793.1
124726.4
84854.7
106
Lags:
30
CO-VARIANCE
2
( /tonne)
-9177.9
-5336.7
-5252.2
-22913.6
-5485.9
919.4
-6316.0
-15435.1
18618.4
20075.2
95363.5
-41085.9
0.0
TABLE
***
EXPERIMENTAL
6.
SEMI-VARIOGRAM
* * *
Variable
: LEAD, London M e t a l E x c h a n g e , FIGURE 18.
Deflator
Population
Mean
:
:
Variance
Lag
Spacing:
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
1 2
. 13
1 4
15
1 6
1 7
18
19
20
21
22
23
24
25
26
27
28
29
30
33
542.3
25673.8
pounds
(
sterling/tonne
/tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
1 7
16
15
14
13
12
1 1
10
9
8
7
6
5
4
3
Number
of
SEMI-VARIANCE
( /tonne)
9165.2
16503.1
19581.5
21322.7
21935.2
30572.3
35419.5
27066.3
22545.6
23280.0
29719.8
32887.7
25432.3
21272.4
25805.4
32299.3
30029.5
24777.9
23813.5
24985.6
23925.0
14306.9
7347.7
14866.1
28230.4
44423.4
61253.3
80103.9
103193.1
119163.9
107
Lags:
30
CO-VARIANCE
2
/tonne)
16017.6
7462. 1
3383.0
1469.8
1092.2
-7248.3
-11497.2
-4870.7
-308. 1
-1171.3
-6870.0
-9235.1
-2525.8
2033.6
-1352.6
-6891.7
-3118.1
3627.6
6827.0
7434.9
8763.0
20706.6
31596.3
28155.9
20586.2
8936.6
5079.0
3912.1
1508.3
-1891.6
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Population
Mean
Variance
Lag
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
12
1 3
1 4
1 5
1 6
17
18
19
20
21
22
23
24
25
26
27
28
29
30
RESIDUALS
* * *
L E A D , London M e t a l E x c h a n g e , FIGURE 2 2 .
Y E A R L Y , 1954 t o 1986
QUADRATIC
33
0.0
20515.9
Spacing:
LAG
7.
pounds
sterling/tonne
( /tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
1 7
16
1 5
1 4
1 3
1 2
1 1
1 0
9
8
7
6
5
4
3
Number
SEMI-VARIANCE
( /tonne)
9071.4
16171.2
18944.0
20030.6
19709.6
27425.9
31496.6
24118.4
19196.3
20066.2
26235.5
28504.6
23149.9
20275.9
24308.3
29534.6
27747.7
23483.1
21165.3
21079.5
18321 . 0
10698.3
4478.3
6014.4
10698.3
13653.2
20630.9
26990.7
34764.3
41260.6
108
of
Lags:
30
CO-VARIANCE
(
/tonne)
11941.6
4597.2
1582.2
968.8
1712.3
-5857.3
-9689.9
-5109.9
-690.7
-2159.5
-7774.6
-9473.0
-4703.4
-1298. 1
-4492.9
-9434.1
-6241 .9
-175.7
3018.3
4065.3
4874.6
15501.0
25153.1
22234.0
16027.4
4543.0
1208.5
1181.3
951 . 6
-883.4
TABLE
***
EXPERIMENTAL
Variable
Deflator
Time
Series
Polynomial
Population
Mean
8.
SEMI-VARIOGRAM
RESIDUALS
***
Variance
L E A D , London M e t a l E x c h a n g e , FIGURE 2 5 .
W H O L E S A L E , P R O D U C E R P R I C E I N D E X 1984=100
Y E A R L Y , 1979 t o 1986
QUADRATIC
8
0.0
pounds s t e r l i n g / t o n n e
2
3142.3 ( / t o n n e )
Lag
1 YEAR
Spacing
LAG
(Years)
1
2
3
4
5
6
7
NUMBER
PRICE
OF
PAIRS
7
6
5
4
3
2
1
Number
SEMI-VARIANCE
(
/tonne)
3417.2
3657.1
3433.1
4771.2
2467.2
1139.9
8758.5
109
of
Lags:
30
CO-VARIANCE
(
/tonne)
-456.0
-1227.5
-1022.9
-1920.9
2877.7
6792.9
0.0
TABLE
***
EXPERIMENTAL
9.
SEMI-VARIOGRAM
* * *
Variable
: Z I N C , London M e t a l E x c h a n g e , FIGURE 2 7 .
Deflator
Population
Mean
31
588.3
Variance
Lag
11832.4
Spacing:
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
12
1 3
1 4
15
1 6
17
18
19
20
21
22
23
24
25
26
27
28
29
30
pounds
(
sterling/tonne
/tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
29
27
26
25
24
23
22
21
20
19
18
1 7
17
1 7
1 6
1 5
14
1 3
12
1 2
1 2
1 1
10
9
8
7
6
5
4
3
Number
of
SEMI-VARIANCE
(
/tonne)
4768.6
10710.0
12237.9
13848.4
15267.0
16778.6
16533.2
13599.4
13302.4
16523.3
11913.5
9189.3
15045.2
16996.0
13306.6
12695.0
15796.2
16328.7
10296.3
6699.3
11698.3
11823.2
5834.3
5464.4
7377.1
11405.4
8320.6
3031.7
3199.7
10944.6
110
Lags:
30
CO-VARIANCE
2
/tonne)
6260.7
-862.9
-614.2
-155.3
-1822.9
-3518. 1
-3413.2
221 . 4
66.9
-3041.6
-477.6
214.0
-4990.0
-6375.5
-2650.6
-1313.4
-3184.4
-2838.1
4987.6
9113.3
3657.2
-235.3
100.5
727.2
-1187.6
-4767.4
-2153.6
5545.9
4072.6
-5023.2
TABLE
***
EXPERIMENTAL
Variable
Deflator
Time
Series
Polynomial
Population
Mean
Variance
Lag
LAG
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
1 2
13
1 4
1 5
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
SEMI-VARIOGRAM
RESIDUALS
* * *
Z I N C , London M e t a l E x c h a n g e , FIGURE 3 0 .
W H O L E S A L E , P R O D U C E R P R I C E INDEX 1984=100
Y E A R L Y , 1954 t o 1986
LINEAR
33
0.0
66459.4
Spacing:
10.
pounds
(
sterling/tonne
/tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
32
31
30
29
28
27
26
25
24
23
22
21
20
1 9
18
1 7
1 6
15
1 4
13
1 2
1 1
10
9
8
7
6
5
4
3
Number
SEMI-VARIANCE
( /tonne)'
25747.9
54255.7
67384.6
78553.2
84429.9
95356.3
99292.7
95852.5
92019.1
94903.6
109502.9
121114.2
86563.8
64934.8
72044.7
77026.1
68654.7
63417.8
67312.2
52859.6
11668.0
12613.7
7451.5
8026.8
10956.6
15781.3
12047.5
6969.8
8418.9
17319.8
111
of
Lags:
30
CO-VARIANCE
( /tonne)'
43422.6
16034.2
4824.8
-4603.2
-9411.6
-18576.6
-20877.0
-15021.8
-9389.2
-9696.4
-21874.7
-30663.6
-18189.1
-5262.8
-9069.3
-10597.2
2805.2
13780.8
15524.4
11461.6
4405.2
340.5
530.1
997.0
-1058.8
-4734.4
-1986.9
5744.6
4206.4
-4920.1
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Population
Mean
Variance
Lag
(Years)
1
2
3
4
5
6
7
8
9
10
1 1
1 2
RESIDUALS
* * *
ZINC, London M e t a l E x c h a n g e , FIGURE 3 3 .

Y E A R L Y , 1974 t o 1986
QUADRATIC
13
0.0
pounds
sterling/tonne
:
Spacing:
LAG
11.
25640.8
/tonne)
1 YEAR
NUMBER
PRICE
OF
PAIRS
12
1 1
10
9
8
7
6
5
4
3
2
1
Number
of
SEMI-VARIANCE
(
/tonne)
22619.2
18924.3
23217.2
28515.8
26010.1
33353.4
30632.2
30446.1
33390.5
19987.8
32171.0
162790.4
112
Lags:
30
CO-VARIANCE
2
/tonne)
-1603.1
739.8
-4119.8
-9559.4
-4721.9
-9938.3
-1918.9
3883.8
7412.0
39431 . 2
65608.6
0.0
APPENDIX 3
SQUARED DIFFERENCES
113
TABLE
***
1.
SQUARED D I F F E R E N C E S C O P P E R 1885
TO 1917
Variable
Deflator
: W H O L E S A L E , P R O D U C E R P R I C E INDEX
Variogram
Kriging
YEAR
: SPHERICAL, FIGURE
: ORDINARY K R I G I N G
PRICE
RANDOM
WALK
( / m . t . ) ( / m . t .)
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1 894
1895
1896
1897
1898
1899
1 900
1 901
1902
1903
1 904
1905
1 906
1 907
1 908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1657 . 0
1428 . 7
1408 . 9
1677 . 6
2867 .0
1687 . 8
1841 . 6
1688 . 5
1604 . 9
1538 . 7
1528 . 0
1692 . 0
1923 . 5
1934 . 1
1961 . 9
2900 . 9
2587 . 9
2441 . 7
1912 . 3
21 1 3. 1
21 46 . 4
2532 . 1
3068 .0
2952 . 9
2033 .0
1993 . 2
1871 . 8
1836 . 3
2243 .4
2101 . 7
1892 . 2
1784 . 6
21 96 . 6
1834 . 6
(DIFF.)
(/m.t. )
1984=100
6.
KRIGING
N = 4
(DIFF.) KRIGING
N = 5
2
(/m. t. ) ( / m . t . )
-"
:
Differences.
: Kriging
Neighbourhood.
: Metric Tons.
114
5476779. 7
(DIFF.)
( /m. t. ) (
1657. 0
52120.9 1657. 0
52120. 9 1 657. 0
3 9 2 . 0 1481 . 7
1428. 7
5 2 9 9 . 8 1 481 . 7
1408. 9
72199. 7 1446. 1
53592. 2 1 446. 1
1677. 6 1414672. 3 1645. 4 1492306. 5 1645. 4
2867. 0 1390512. 6 2468. 4
609336. 4 2474. 9
1687. 8
23654. 4 1744. 4
9447. 8 1 756. 3
1841 . 6
23439. 6 1723. 6
1232. 0 1800. 2
1688. 5
6989. 0 1766. 3
2 6 0 5 0 . 0 1 921 . 0
4382. 4 1844. 8
1604. 9
93697. 2 1629. 7
1538. 7
1 14. 5 1 587. 0
3481 . 0 1 601 . 9
1528. 0
26896. 0 1 594. 0
9604. 0 1 559. 0
1692. 0
5 3 5 9 2 . 2 1 6 7 2 .2
63151. 7 1 658. 6
1923. 5
112. 4 1826. 6
11556. 2 1827. 4
1934. 1
772. 8 1842. 2
14328. 1 1857. 2
1961 . 9
881721. 0 1865. 7 1071639. 0 1 9 0 9 . 2
2900. 9
97969. 0 2546. 0
1 7 5 5 . 6 2621 . 3
2587. 9
2 1 3 7 4 . 4 2471 . 4
882. 1 2496. 6
2441 . 7
2 8 0 2 6 4 . 4 2331 . 1
175393. 4 2370. 2
1912. 3
40320. 6 2019. 1
8836. 0 2151. 0
2113. 1
1 1 0 8 .9 2 2 5 7 . 9
1 2 4 3 2 . 2 2181 . 5
2146. 4
148764. 5 2243. 1
83521. 0 2196. 4
2532. 1
278188. 8 2448. 8
383408. 6 2377. 0
3068. 0
13248. 0 2764. 0
35683. 2 2833. 7
2952. 9
846216. 0 2773. 2
547896. 0 2814. 2
2033. 0
1584. 0 2159. 0
27489. 6 2222. 9
1 9 9 3 .2
14738. 0 2140. 6
72253. 4 2199. 3
1871 . 8
1 260.2 2159. 0
104135. 3 2083. 9
1936. 3
165730. 4 2052. 1
36595. 7 1876. 8
2243. 4
2 0 0 7 8 . 9 21 5 5 . 6
2 9 0 5 . 2 21 5 4 . 4
2101 . 7
43890. 2 2087. 5
38142. 1 2072. 7
1892. 2
1 1 5 7 7 . 8 1901 . 6
13689. 0 1 904.8
1784. 6
169744. 0 1825. 5
1 3 7 7 1 5 . 2 1881 . 4
2196. 6
131044. 0 2162. 8
107715. 2 2136. 0
6247672. 9
DIFF.
N
m.t.
***
/m.t )
52120 . 9
5299 .8
5392. 2
1492306 . 5
619526 .4
7276 . 1
12476 . 9
99919 .2
8281 . 0
5461 . 2
17698 .0
70172 .0
1 1384 . 9
10959 .8
983468 .9
1115 . 6
3014 . 0
209672 .4
1436 . 4
1232 . 0
112694 . 5
477481 . 0
1 4208 . 6
610273 .4
52762 . 1
107256 .2
61305 .8
134395 . 6
2777 .3
32580 .2
1 4448 .0
99351 . 0
90842 .0
5307291 .2
TABLE
***
SQUARED D I F F E R E N C E S
2.
COPPER
1885 T O 1917 * * *
Variable
Deflator
: WHOLESALE,PRODUCER P R I C E INDEX
Variogram
Kriging
YEAR
: HOLE E F F E C T , FIGURE
PRICE
(
1884
1885
1-886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
191 1
1912
1913
1914
1915
1916
1917
KRIGING
N = 6
S/m.t . ) ( / m . t . )
1657 . 0
1428 . 7
1 408. 9
1677 . 6
2867 . 0
1687 . 8
1841 . 6
1688 . 5
1 604. 9
1 538. 7
1528 . 0
1692 . 0
1923 . 5
1 934. 1
1 961. 9
2900 . 9
2587 . 9
2441 . 7
1912 . 3
21 13 . 1
2146 . 4
2532 . 1
3068 . 0
2952 . 9
2033 . 0
1 9 9 3. 2
1871 . 8
1836 . 3
2243 .4
2101 . 7
1892 . 2
1784 . 6
2196 .6
1834 . 6
(DIFF.)
( /m.t.)
1657. 0
52120. 9
1476. 9
4624. 0
1420. 8
65946. 2
1617. 9 1560250. 8
2487. 2
639040. 4
1807. 7
1 145. 1
1610. 5
6081 . 9
1630. 3
646. 7
1829. 8
84739. 7
1871 . 0
117603. 6
1 621 .7
4945. 3
1735. 3
35410. 8
1847. 1
7566. 0
1840. 9
14641. 6
1821 . 8 1 164411 . 0
2401 . 3
34840. 8
2401 . 6
1606. 9
2264. 4
124032. 4
1937. 8
30725. 2
2166. 1
389. 1
2415. 3
13643. 2
2552. 9
265240. 1
2794. 1
25190. 7
2647. 5
411513. 4
2117. 4
15415. 8
2045. 7
30239. 1
2208. 8
138782. 9
2301 . 6
3387. 1
2376. 5
75490. 7
2131 . 2
57105. 8
1933. 3
22084. 9
148122. 6
1810. 5
2117. 2
79866. 1
6.
KRIGING
N = 7
(DIFF.) KRIGING
N = 8
2
(Vm. t. ) ( / m . t . )
(DIFF.)
( / m . t . ) ( / m . t .)
1657. 0
5 2 1 2 0 . 9 1657 . 0
52120 .9
1476. 9
4 6 2 4 . 0 1 4 7 6. 9
4624 .0
1420. 8
6 5 9 4 6 . 2 1 420. 8
65946 .2
1 6 1 7 . 9 1 5 6 0 2 5 0 . 8 1617 . 9 1 5 6 0 2 5 0 . 8
2487. 2
6 3 9 0 4 0 . 4 2487 .2
639040 .4
1807. 7
1 1 4 5 . 1 1807 . 7
1 1 45. 1
1600. 3
7 7 7 3 . 6 1600 . 3
7 7 3 . 69
1607. 7
7 . 9 1600 . 7
17 . 5
1787. 6
61971 . 0 1 792. 3
64300 . 1
1813. 7
8 1 5 9 8 . 1 1839 . 6
97046 . 1
1697. 1
1 6 6 .4 1 721. 1
844 .6
1713. 8
4 3 9 4 3 . 5 1 6 3 6. 4
82356 .2
1834. 4
9 9 5 0 . 2 1841 . 6
8554 .3
1817. 6
20821 . 2 1813 . 6
21996 .7
1 7 9 6 . 2 1 2 2 0 4 2 5 . 0 1801 . 0 1 2 0 9 7 9 0 . 0
2358. 1
52841 . 5 2 3 6 9 . 1
47875 . 1
2335. 9
11194. 3 2362 .3
6301 . 7
8 8 4 5 7 . 1 2249 . 1
2 2 0 9 . 7
1 13490 .8
1910. 4
4 1 0 9 9 . 8 1939 . 6
30096 . 1
2138. 1
6 8 . 3 2141 . 9
19 . 9
2351 . 8
32511 . 4 2361 . 4
291 53 . 5
2551 . 0
2 6 7 2 1 8 . 1 2596 .4
222333 .6
2767. 7
3 4 2 7 4 . 6 2748 .9
41598 . 5
2648. 2
3 7 8 4 9 5 . 9 2650 . 1
380873 .7
2068. 6
5 6 8 3 . 5 2061 . 5
4665 .8
2 3 8 5 7 . 3 2045 .9
2026. 2
30312 . 5
2174. 9
1 1 4 6 5 5 . 6 2173 .2
113503 .2
2272. 0
1758 . 9
8 1 3 . 7 2285 .4
2384. 8
8 0 1 3 3 . 1 2395 .9
86501 . 4
7 1 2 8 0 . 0 2129 .4
2159. 2
56236 .5
1913. 5
1 6 5 9 5 . 5 1858 . 7
5485 .3
1 5 7 2 6 6 . 8 1 7 9 7 8 . 0 158955 .7
1800. 1
2093. 4
6 6 9 9 0 . 8 2085 .8
63105 .8
5237846. 0
DIFF.
N
m.t.
1984=100
: Differences.
: K r i g i n g Neighbourhood.
: Metric Tons.
115
5213216. 5
5208069 .3
TABLE
***
3.
COPPER
1919
TO 1953
Variable
Deflator
Variogram
Kriging
YEAR
:
:
S P H E R I C A L , FIGURE
ORDINARY K R I G I N G
PRICE
RANDOM
WALK
( / m . t . ) ( / m . t .)
1918
1919
1920
1921
1922
1923
1 924
1925
1926
1 927
1 928
1 929
1 930
1 931
1 932
1 933
1 934
1 935
1 936
1 937
1 938
1 939
1 940
1 941
1 942
1 943
1 944
1945
1946
1947
1948
1 949
1950
1951
1952
1953
1 5 3 6. 6
1 0 8 9. 8 1 5 3 6 . 6
940 . 6 1 0 8 9 . 8
1 034. 3
940. 6
1 153 . 6 1 0 3 4 . 3
1 222. 6 1 1 5 3 .6
1 1 30. 0 1 2 2 2 . 6
1 149 . 8 1 1 3 0 . 0
1 1 64. 4 1 1 4 9 .8
1 165 . 4 1 1 6 4 . 4
1 2 7 9 . 5 1 1 6 5 .4
1 6 4 9. 4 1 2 7 9 . 5
1 3 4 3. 7 1 6 4 9 . 4
1 0 7 3. 4 1 3 4 3 . 7
917 . 1 1075. 4
941 . 5 9 1 7 . 1
851 . 5
941 . 5
896 . 1
851 . 5
1 022. 5
896. 1
1246 . 6 1 0 2 2 . 5
1001 . 6 1 2 4 6 . 6
1024 . 6 1 001 .6
1 130 . 0 1 0 2 4 . 6
1000 . 3 1 1 3 0 . 0
968 . 6 1 0 0 0 . 3
938 . 8
968. 6
924 . 6
938. 8
910 . 8
924. 6
1085 . 0
910. 8
1690 . 5 1 0 8 5 . 0
1515 . 9 1 6 9 0 . 5
1438 . 9 1 5 1 5 . 9
1691 . 9 1 4 3 8 . 9
1 721 . 3 1691 . 9
1 964. 4 1721 . 3
1 9 4 0. 2 1 9 6 4 . 4
(DIFF.)
( /m.t. )
Differences;
N,
1536. 6
1 172. 9
989. 7
1034. 2
1141. 6
1219. 4
1161. 6
1 169. 3
1 185. 0
1191. 6
1286. 0
1595. 2
1402. 4
1 120. 6
943. 6
941 . 7
880. 8
904. 4
1000. 8
1 196. 3
1045. 3
1042. 5
1 146. 3
1079. 6
1 0 0 7 .7
951 . 5
922. 6
906. 6
1 0 3 3 .8
1536. 4
1509. 6
1448. 9
1613. 7
1673. 3
1872. 0
13424785 .3
DIFF.,
Kriging
(DIFF.)
( /m. t .)( /m.t. )
199630. 2
22260. 6
8779. 7
14232. 5
4761 . 0
8574. 8
392. 0
213. 2
1.0
13018. 8
136826. 0
93452. 5
71984. 9
25058. 9
595. 4
8100. 0
1989. 2
15977. 0
50220. 8
60025. 0
529. 0
11109. 2
16822. 1
1004. 9
888. 0
201 . 6
190. 4
30345. 6
366630. 2
30485. 2
5929. 0
64009. 0
864. 4
59097. 6
585. 6
1984=100
7.
KRIGING
N = 12
2
***
KRIGING ( D I F F . )
N = 1 3
2
( /m.t. ) ( /m.t.)
199630. 9
53963. 3
1989. 2
14256. 4
6561 . 0
7992. 4
139. 2
24. 0
384. 2
7726. 4
129888. 2
63252. 2
106929. 0
41412. 2
4. 4
8154. 1
234. 1
T3947. 5
60417. 6
37908. 1
436. 8
7656. 2
21316. 0
12321 . 0
4747. 2
723. 6
139. 2
31826. 6
431254. 9
420. 2
4998. 5
59049. 0
11577. 8
84739. 2
4651 . 2
1 5 3 6 .6
1 172. 9
989. 7
1 0 3 4 .2
1141. 6
1219. 4
1161. 6
1 169. 3
1 185. 0
1191. 6
1 2 8 6 .0
1 5 9 5 .2
1 3 6 9 .7
1111. 1
950. 3
949. 2
882. 2
896. 0
1 001 .7
1 198. 7
1 0 4 7 .1
1 0 5 4 .0
1 1 6 7 .5
1 0 5 2 .3
985. 5
939. 7
922. 9
900. 7
1039. 9
1552. 6
1525. 9
1434. 2
1620. 4
1682. 9
1867. 4
1405791. 7
Neighbourhood;
116
199630. 2
53963. 3
1 9 8 9 .2
14256. 4
6561 . 0
7992. 4
139. 2
24. 0
384. 2
7726. 4
129888. 2
63252. 2
86612. 5
37636. 0
77. 4
9545. 3
193. 2
16002. 2
59976. 0
38848. 4
506. 2
5776. 0
27955. 8
7005. 7
2180. 9
228. 0
146. 4
33966. 5
423280. 4
1 3 4 6 .9
7569. 0
66409. 3
10180. 8
79242. 2
5299. 8
1430671. 3
m.t.,
Metric
Tons
T A B L E 4.
***
SQUARED D I F F E R E N C E S C O P P E R
1 9 5 5 TO 1 9 8 6 * * *
Variable
: COPPER, L o n d o n M e t a l E x c h a n g e
Deflator
: WHOLESALE,PRODUCER P R I C E I N D E X
Variogram
Kriging
YEAR
: SPHERICAL, FIGURE
PRICE
RANDOM
WALK
(DIFF.)
1984=100
8.
KRIGING
N = 4
(DIFF.) KRIGING
N = 14
2
(DIFF.)
( /m. t .) (/m.t .) (/m.t. ) ( / m . t . )(/m.t . ) ( / m . t . ) ( /m.t. )

:2
1954
1955
1956
1957
1958
1959
1 960
1 961
1962
1963
1964
1965
1 966
1 967
1968
1969
1 970
1 971
1 972
1 973
1974
1 975
1976
1977
1978
1979
1980
1981
1982
1983
1 984
1985
1986
DIFF.
N
m.t.
1873. 4
2587. 4
2313. 4
1490. 8
1333. 7
1603. 3
1635. 9
1487. 9
1486. 5
1471 . 8
21 4 3 . 9
2752. 7
31 7 2 . 7
2360. 6
2849. 2
3252. 3
2878. 7
2029. 4
1860. 7
2942. 6
2875. 4
1469. 2
1762. 3
1410. 2
1225. 0
1438. 1
1243. 5
1043. 0
948. 2
1113. 9
1032. 7
1046. 8
849. 4
:2
1873. 4
509796. 0 1873. 4
2587. 4
75076. 0 2583. 6
231 3. 4 6 7 6 6 7 0 . 8 2 3 0 7 . 4
1490. 8
24680. 4 1486. 9
1333. 7
7 2 6 8 4 . 2 1 3 3 2 .7
1603. 3
1 0 6 3 .3 1 6 0 3 .4
1635. 9
21904. 0 1637. 2
1487. 9
2. 0 1491 . 6
1486. 5
216. 1 1492. 3
1471 . 8 4 5 1 7 1 8 . 4 1 4 8 0 . 0
21 4 3 . 9 3 7 0 6 3 7 . 4 2 1 4 3 . 9
2752. 7
176400. 0 2738. 6
31 7 2 . 7
6 5 9 5 0 6 . 4 3141 . 3
2360. 6 238730. 0 2344. 5
2849. 2
162489. 6 2882. 6
3252. 3
1 3 9 5 7 7 . 0 3251 . 1
2878. 7 721310. 5 2813. 6
2029. 4
28459. 7 1970. 4
1860. 7 1170507. 6 1825. 6
2942. 6
451 5. 8 2 8 7 2 . 6
2875. 4 1977398. 4 2787. 2
1469. 2
85849. 0 1415. 7
1762. 2
123904. 0 1692. 4
1410. 2
34299. 0 1406. 6
1225. 0
45411. 6 1282. 6
1 438.1
3 7 8 6 9 . 2 1531 . 6
1243. 5
40200. 2 1277. 1
1043. 0
8987. 0
1131 .3
948. 2
27456. 5 1084. 4
1113. 9
6593. 4 1222. 2
1032. 7
198. 8 1075. 0
1046. 8
38966. 8 1078. 4
5 0 9 7 9 6 .0
7 3 0 0 8 .0
6 6 6 8 3 5 .6
2 3 4 7 0 .2
7 3 2 2 4 .4
1 0 5 6 .2
2 2 2 9 0 .5
26 .0
4 2 0 .2
4 4 0 8 9 6 .0
3 7 0 6 3 7 .4
1 8 8 4 4 2 .8
6 0 9 4 9 2 .5
254722 . 1
136678 . 1
1 3 8 6 8 1 .8
6 1 4 9 6 9 .6
12034 . 1
1 2 4 7 6 8 9 .0
7 .8
1 7 3 7 1 2 4 .0
1 2 0 0 6 2 .2
7 6 6 3 6 .8
3 2 9 7 8 .6
2 4 1 8 0 .2
8 3 0 0 1 .6
5 4 8 4 9 .6
3 3 5 2 5 .6
8 7 0 .2
3 5 9 1 0 .2
7 9 5 .2
5 2 4 4 1 .0
7933077. 7
7 8 7 6 7 4 7 .9
: Differences.
: M e t r i c Tons.
117
1873. 4
509796. 0
2583. 6
73008. 0
2307. 4
666835. 6
1486. 9
23470. 2
1347. 7
65331. 4
1616. 5
376. 4
1635. 4
21756. 2
1484. 1
5. 8
1487. 5
246. 5
1474. 2
448498. 1
2140. 3
375033. 8
2742. 4
185158. 1
3153. 3
628373. 3
2350. 9
248302. 9
2848. 4
163135. 2
3257. 8
143716. 8
2868. 7
704424. 5
2031 . 6
29206. 8
1867. 6 1155625. 0
2951 . 9
5852. 2
2867. 0 1953844. 8
1460. 4
91083. 2
1776. 6
134249. 0
1431 . 4
42601. 0
1225. 1
45369. 0
1444. 5
40401. 0
1245. 2
40925. 3
1042. 7
8930. 2
953. 9
25600. 0
1117. 2
7140. 2
1032. 9
1 9 3 .2
1045. 0
38259. 4
7639752. 9
T A B L E 5.
***
SQUARED D I F F E R E N C E S C O P P E R
Variable
:
Deflator
:
Time S e r i e s :
Polynomial :
Variogram
:
Kriging
:
YEAR
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1 981
1 982
1983
1 984
1985
1986
1 9 6 9 TO 1 9 8 6 * * *
COPPER, L o n d o n M e t a l E x c h a n g e
WHOLESALE,PRODUCER P R I C E I N D E X
YEARLY, 1954 t o 1986
QUADRATIC
SPHERICAL, FIGURE 11.
UNIVERSAL KRIGING
PRICE
RANDOM
WALK
( /m. t .)
(/m.t.)
3252. 3
2878. 7
2029. 4
1860. 7
2942. 6
2875. 4
1469. 2
1762. 3
1410. 2
1 2 2 5 .0
1438. 1
1243. 5
1043. 0
948. 2
1113. 9
1032. 7
1046. 8
849. 4
2849.2
3252.3
2878.7
2029.4
1860.7
2942.6
2875.4
1469.2
1762.2
1410.2
1225.0
1438.1
1243.5
1043.0
948.2
1113.9
1032.7
1046.8
(DIFF. )
(/m.t. )
1 6 2 4 8 9 .6
1 3 9 5 7 7 .0
7 2 1 3 1 0 .5
2 8 4 5 9 .7
1 1 7 0 5 0 7 .6
4 5 1 5 .8
1 9 7 7 3 9 8 .4
8 5 8 4 9 .0
1 2 3 9 0 4 .0
3 4 2 9 9 .0
4541 1 .6
3 7 8 6 9 .2
4 0 2 0 0 .2
8 9 8 7 .0
2 7 4 5 6 .5
6 5 9 3 .4
1 98.8
3 8 9 6 6 .8
4 6 5 3 9 9 3 .6
DIFF.
N
m.t.
: Differences.
: M e t r i c Tons.
118
1984=100
KRIGING
N = 15
(DIFF. )
(/m.t.) (/m.t. )
3013.9
5 6 8 5 6 .6
3628.8
5 6 1 8 8 6 .0
3 2 6 0 . 0 1 5 1 4 3 9 4 .0
2098.7
5 6 6 4 3 .5
1 6 7 3 . 6 1 6 1 0 2 3 5 .0
2808.4
4 4 9 5 .9
2 9 2 4 . 9 2 1 1 9 1 0 7 .0
1345.5
1 7 3 5 8 5 .7
1332.6
6 0 2 3 .9
896.5
1 0 7 8 9 2 .6
730.3
5 0 0 9 7 4 .3
1 120.4
1 51 54 .9
1195.9
2 3 3 8 6 .0
817.8
1 6 9 8 7 .8
765.5
1 21437. 1
1062.3
880 . 1
1013.5
1 1 1 2 .3
940.2
8 2 3 8 .8
6 8 9 9 2 9 1 .0
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Variogram
Kriging
YEAR
SQUARED D I F F E R E N C E S C O P P E R 1985 T O 1986

COPPER, London M e t a l Exchange
W H O L E S A L E , P R O D U C E R P R I C E INDEX
Y E A R L Y , 1973 t o 1986
QUADRATIC
PURE NUGGET E F F E C T , F I G U R E 1 4 .
not
applicable
PRICE
(/m.t.)
1985
1986
6.
1046.8
849.4
RANDOM
WALK
(/m.t.)
(DIFF.)
(/m.t.)
1032.7
1046.8
198.8
38966.8
39165.6
DIFF.
N
m.t.
Differences.
Kriging
Neighbourhood.
Metric Tons.
119
***
1984=100
CURVE
FITTED
(DIFF.)
(/m.t.)
(/m.t.)
1004.4
1096.6
1803.3
61095.5
62898.8
T A B L E 7.
***
SQUARED D I F F E R E N C E S L E A D
1 9 5 5 TO 1 9 8 6 * * *
Variable
: LEAD, London M e t a l Exchange
Deflator
: WHOLESALE,PRODUCER P R I C E I N D E X
T i m e S e r i e s : YEARLY, 1954 t o 1986
Variogram
Kriging
YEAR
: SPHERICAL, FIGURE 19.

PRICE
RANDOM
WALK
( / m . t . ) (/m.t
1954
1 955
1956
1957
1958
1959
1 960
1 961
1 962
1 963
1 964
1 965
1966
1 967
1 968
1969
1 970
1 971
1 972
1 973
197 4
1975
1 976
1 977
1 978
1 979
1 980
1981
1 982
1 983
1 984
1985
1986
724. 6
777. 5
817. 7
655. 9
490. 6
477. 1
479. 8
415. 8
357. 4
397. 7
615. 1
673. 7
544. 5
473. 8
553. 5
642. 3
619. 0
473. 9
524. 3
705. 8
827. 8
489. 1
564. 0
665. 0
590. 5
870. 1
516. 1
436. 9
347. 9
297. 5
332. 1
287. 8
251 . 1
724. 6
777. 5
817. 7
655. 9
490. 6
477. 1
479. 8
415. 8
357. 4
397. 7
615. 1
673. 7
544. 5
473. 8
553. 5
642. 3
619. 0
473. 9
524. 3
705. 8
827. 8
489. 1
564. 0
665. 0
590. 5
870. 1
516. 1
436. 9
347. 9
297. 5
332. 1
287. 8
(DIFF.)
(/m.t.
>
KRIGING
N = 5
(DIFF.) KRIGING
N = 6
( /m. t . )(/m.t.
2798. 4
1616. 0
26179. 2
27624. 1
182. 2
7. 3
4096. 0
341 0. 6
1624. 1
47262. 8
3434. 0
16692. 6
4998. 5
6352. 1
. 7 8 8 5 .4
542. 9
21054. 0
2540. 2
32942. 2
14884. 0
114717. 7
5610. 0
10201. 0
5550. 2
78176. 2
125245. 2
6272. 6
7921 . 0
2540. 2
1 1 9 7 .2
1962. 5
1346. 9
724. 6
770. 0
807. 0
672. 1
525. 9
516. 8
533. 3
457. 8
432. 0
406. 3
589. 6
640. 5
522. 1
456. 4
556. 4
648. 9
612. 9
476. 8
520. 7
691 . 5
800. 7
501 . 5
541 . 9
666. 3
639. 4
799. 4
541 . 4
466. 0
378. 3
390. 2
358. 6
314. 6
586567. 3
DIFF.
N
m.t.
1984=100
>
2798. 4
2275. 3
22831 .2
32942. 2
2381 . 4
1369. 0
13806. 2
10080. 2
1 1 7 6 .5
43597. 4
7072. 8
9216. 0
2332. 9
9428. 4
7378. 8
894. 0
19321. 0
2256. 2
34262. 0
18577. 7
97094. 6
3906. 2
15153. 6
5745. 6
53222. 5
80258. 9
10920. 2
13947. 6
6528. 6
3410. 6
5012. 6
4032. 2
543231 .2
: Differences.
: M e t r i c Tons.
120
(DIFF.)
(/m. t . ) ( / m . t . )
724. 6
770. 0
807. 0
672. 1
525. 9
514. 7
535. 1
489. 2
406. 6
409. 8
585. 4
644. 7
528. 0
447. 8
523. 3
640. 8
631 . 9
488. 0
508. 3
675. 4
800. 1
525. 1
532. 5
637. 0
628. 6
841 . 5
531 . 5
457. 6
392. 5
362. 6
417. 0
330. 6
2798. 4
2275. 3
22831 .2
32942. 2
2381 .4
1218. 0
14232. 5
17371. 2
79. 2
42148. 1
7796. 9
10040. 0
2937. 6
11172. 5
14161. 0
457. 2
24964. 0
1317. 7
39006. 2
23225. 8
96721. 0
1513. 2
17556. 2
21 6 2 . 2
58322. 2
105885. 2
8949. 2
12030. 2
9025. 0
930. 2
16692. 6
6320. 2
609486. 2
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Variogram
Kriging
YEAR
SQUARED D I F F E R E N C E S L E A D
1966
LEAD, London M e t a l Exchange

WHOLESALE,PRODUCER P R I C E INDEX
Y E A R L Y , 1954 t o 1986
QUADRATIC
S P H E R I C A L , FIGURE 2 2 .
UNIVERSAL KRIGING
PRICE
(/m.t.)
1966
1 967
1968
1969
1970
1 971
1 972
1 973
1974
1 975
1976
1 977
1 978
1 979
1980
1 981
1 982
1 983
1 984
1 985
1986
8.
544.5
473.8
553.5
642.3
619.0
473.9
524.3
705.8
827.8
489.1
564.0
665.0
590.5
870. 1
516.1
436.9
347.9
297.5
332. 1
287.8
251 . 1
RANDOM
WALK
(/m.t.)
(DI1F.)
(/m.t.)
16692. 6
4998. 5
6352. 1
7885. 4
542. 9
21054. 0
2540. 2
32942. 2
14884. 0
114717. 7
5610. 0
10201 . 0
5550. 2
78176. 2
125245. 2
6272. 6
7921 . 0
2540. 2
1 197. 2
1962. 5
1 3 4 6 .9
673.7
544.5
473.8
553.5
642.3
619.0
473.9
524.3
705.8
827.8
489. 1
564.0
665.0
590.5
870. 1
516.1
436.9
347.9
297.5
332. 1
287.8
468632. 6
DIFF.
N
m.t.
:
Differences.
: Kriging
Neighbourhood.
: Metric Tons.
121
T O 1986
***
1984=100
KRIGING
N = 12
(/m.t.)
757. 9
641 . 9
529. 9
573. 5
681 . 0
684. 1
485. 2
464. 8
672. 1
880. 7
542. 2
548. 1
637. 5
573. 3
935. 8
559. 8
352. 1
198. 6
169. 0
274. 5
276. 1
(DIFF.)
( / m . t . )
45548. 4
28245. 0
557. 1
4743. 5
3841 . 7
44192. 3
1 526. 1
58087. 7
24236. 0
153351. 6
477. 7
13667. 2
2208. 4
88073. 6
176094. 1
15113. 8
17. 1
9786. 6
26590. 9
176. 5
646. 2
697181 . 5
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Variogram
Kriging
YEAR
LEAD
1985
PRICE
287.8
251.1
***
1984=100
RANDOM
WALK
( D I F F . )'
CURVE
FITTED
(DIFF.)
(/m.t.)
(/m.t.)'
(/m.t.)
(/m.t.)
332. 1
287.8
1962.5
1346.9
3309.4
DIFF.
N
m.t.
TO 1986
LEAD, London M e t a l
Exchange
WHOLESALE,PRODUCER PRICE INDEX
Y E A R L Y , 1979 t o 1986
QUADRATIC
P U R E NUGGET E F F E C T , F I G U R E
25.
not
applicable
(/m.t.)
1 985
1 986
9.
: Differences.
: Kriging
Neighbourhood.
: Metric
Tons.
122
262.2
304.0
655.4
2798.4
3453.8
TABLE
***
10.
SQUARED D I F F E R E N C E S Z I N C
1955 T O 1986 * * *
Variable
: ZINC, London M e t a l E x c h a n g e , no o u t l i e r s .
Deflator
Variogram
Kriging
'EAR
: SPHERICAL, FIGURE
PRICE
( S/m.t.)
1954
1 955
1956
1 957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1 972
588.0
665.9
686.9
553.7
444.2
554.3
593.8
503.3
428.3
480.8
717.6
661 . 4
538.6
568. 1
604.5
634.2
602.9
579.7
656. 1
1973
1974
1975
884.8
1 976
1 977
1978
1979
1980
1981
1982
1983
1 984
1985
1986
888.7
634.9
532.4
537.6
431 . 8
510.8
476.0
536.1
667.8
563.7
465.9
RANDOM
WALK
27.
(DIFF.)
( S/m.t. ) U / m . t . )
588.0
665.9
686.9
553.7
444.2
554.3
593.8
503.3
428.3
480.8
717.6
661 . 4
583.6
568.1
604.5
634.2
602.9
579.7
6068.4
441 . 0
17742.2
11990.2
12122.0
1560.2
8190.2
5625.0
2756.2
56074.2
3158.4
6052.8
240.2
1325.0
882. 1
979.7
538.2
5837.0
656. 1
884.8
888.7
634.9
532.4
537.6
431 . 8
510.8
476.0
536.1
667.8
563.7
15.2
64414.4
10506.2
27.0
11193.6
6241.0
1211.0
3612.0
17344.9
10836.8
9564.8
276549.9
DIFF.
N
:
Differences.
: Kriging
Neighbourhood.
123
KRIGING
N = 6
(/m.t.)
_
(DIFF.)
(/m.t.)
588.0
663.6
681 . 5
550.1
447.0
554.5
608.4
532.7
441 . 1
469. 1
709.9
664.7
573.5
540.0
578.6
651 . 3
614.2
578.5
6068.4
542.9
16332.8
1214.8
11513.3
1544.5
11046.0
10899.4
1576.1
61752.2
2352.2
15901.2
29.2
4160.2
3091.4
2342.6
1190.2
1526.1
645.6
648.3
658.5
51202.2
857.0
848.9
620. 1
552. 1
569.4
485.6
572.6
500.5
540.0
664.0
543.8
1004.2
45822.1
7692.3
210.5
18941.5
635.0
9331.6
1267.4
16332.8
10060.1
6068.4
270449.4
TABLE
***
11.
ZINC
1966 TO 1986
***
Variable
: ZINC, London M e t a l E x c h a n g e , o u t l i e r s
included
Deflator
: W H O L E S A L E , P R O D U C E R P R I C E INDEX 1 9 8 4 = 1 0 0
P o l y n o m i a l : LINEAR
Variogram
: S P H E R I C A L , FIGURE 3 0 .
Kriging
: UNIVERSAL KRIGING
YEAR
PRICE
( /m.t.)
1966
1967
1968
1969
1 970
1 971
1 972
1 973
1974
1975
1976
1977
1 978
1979
1980
1981
1 982
1 983
1 984
1985
1 986
538.6
568.1
604.5
634.2
602.9
579.7
656.1
1395.3
1729.1
884.8
888.7
634.9
532.4
537.6
431 . 8
510.8
476.0
536. 1
667.8
563.7
465.9
RANDOM
WALK
(DIFF. )
(/m.t.)
(/m.t. )
661 . 4
583.6
568.1
604.5
634.2
602.9
579.7
656.1
1395.3
1729.1
884.8
888.7
634.9
532.4
537.6
431 . 8
510.8
476.0
536.1
667.8
563.7
6052. 8
240. 2
1325. 0
882. 1
979. 7
538. 2
5837. 0
546416. 6
111422. 4
712842. 5
15. 2
64414. 4
10506. 2
27. 0
1 1 1 9 3 .6
6241 . 0
1211. 0
3612. 0
17344. 9
10836. 8
9564. 8
1521503.4
DIFF.
N
m.t.
: Differences.
: Metric Tons.
124
KRIGING
N = 12
(DIFF.
>
(/m. t.)
(/m.t.
>
720. 4
626. 4
588. 3
598. 4
634. 8
632. 0
596. 5
654. 9
1616. 3
2089. 6
959. 7
822. 8
441 . 9
350. 4
461 . 8
314. 6
343. 7
258. 9
368. 8
768. 1
770. 8
18715
3399
263
1283
1018
2737
3548
548096
12725
1451566
5030
35296
8197
35063
897
38490
17501
76867
89401
41817
92920
.4
.9
.4
.2
.8
.2
.0
.2
.2
.0
.3
.3
. 1
.3
.2
.2
.9
.6
.4
.8
.4
2484836.5
TABLE
***
Variable
Deflator
Time
Series
Polynomial
Variogram
Kriging
YEAR
1985
1986
12.
SQUARED D I F F E R E N C E S Z I N C
ZINC, London M e t a l Exchange

WHOLESALE,PRODUCER PRICE INDEX
Y E A R L Y , 1974 t o 1986
QUADRATIC
PURE NUGGET E F F E C T , F I G U R E 3 3 .
not
applicable
PRICE
RANDOM
WALK
(/m.t.)
(/m.t.)
563.7
465.9
667.8
563.7
(DIFF.)
(/m.t.)
10836.8
9564.8
20401.6
DIFF.
N
m.t.
1985
:
Differences.
: Kriging
Neighbourhood.
: Metric Tons.
125
T O 1986
***
1984=100
CURVE
FITTED
(DIFF.)
(/m.t.)
(/m.t.)
567.2
683.8
12.9
47478.7
47491.6
APPENDIX 4
POLYNOMIAL CURVES
TABLE
***
POLYNOMIAL
Variable
Deflator
Time S e r i e s
Population
Fitted
YEAR
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
= Series
C O P P E R 1954
P O L Y N O M I A L OF ORDER K = 2 ,
SERIES
T
CURVE F I T T I N G
TO 1986
***
: COPPER, London M e t a l E x c h a n g e , FIGURES 9 ,

: Y E A R L Y , 1954 t o 1986
: 33
Curve:
QUADRATIC
1.
PRICE
(/tonne)
EQUATION :
-30575.2
QUADRATIC
FITTED PRICE
(/tonne)
1873.4
2587.4
2313.4
1490.8
1333.7
1603.3
1635.9
1487.9
1486.5
1471.8
2143.9
2752.7
3172.7
2360.6
2849.2
3252.3
2878.7
2029.4
1860.7
2942.6
2875.4
1469.2
1762
1410.2
1225.0
1438.1
1243.5
1043.0
948.2
1113.9
1032.7
1046.8
849.4
RESIDUAL
(/tonne)
1561.0
1675.9
1781.4
1877.5
1964.2
2041.6
2109.6
2168.2
2217.4
2257.2
2287.6
2308.7
2320.4
2322.7
2315.6
2299.2
2273.3
2238. 1
2193.5
2139.5
2076. 1
2003.4
1921.2
1829.7
1728.8
1618.5
1498.9
1369.8
1231 . 4
1083.6
926.4
759.9
583.9
+ 785.7
Value.
127
T -
10.
4.7
312.4
911.5
532. 1
-386.7
-630.5
-438.3
-473.6
-680.3
-730.9
-785.4
-143.8
444.0
852.3
37.9
533.5
953.2
605.4
-208.7
-332.8
803. 1
799.3
-534.2
-159.1
-419.5
-503.8
-180.5
-255.4
-326.9
-283.2
30.3
106.2
287.0
265.5
T
TABLE
***
P O L Y N O M I A L CURVE F I T T I N G C O P P E R
Variable
Deflator
Time S e r i e s
Population
Fitted
:
:
:
:
Curve:
P O L Y N O M I A L OF
YEAR
90
91
92
93
94
95
96
97
98
99
1 00
101
1 02
1 03
1973
1974
1975
1976
1977
1 978
1979
1 980
1981
1982
1983
1984
1985
1 986
1986
***
ORDER K = 2, Q U A D R A T I C
PRICE
( /tonne)
QUADRATIC EQUATION:
=
1 9 7 3 TO
COPPER, L o n d o n M e t a l E x c h a n g e , FIGURES 12, 13.

WHOLESALE,PRODUCER P R I C E I N D E X 1 9 8 4 = 1 0 0
Y E A R L Y , 1 9 7 3 t o 1986
14
SERIES
T
2.
2942.6
2875.4
1469.2
1762.2
1410.2
1225.0
1 438. 1
1243.5
1043.0
948.2
1113.9
1032.7
1046.8
849.4
FITTED PRICE
(/tonne)
RESIDUAL
(/tonne)
2777.8
2426.9
2113.0
1835.9
1595.8
1392.7
1226.4
1097.1
1004.7
949.2
930.7
949.0
1004.4
1096.6
164.8
448.5
-643.8
-73.8
-185.6
-167.7
211.7
146.4
38.3
-1 .0
183.3
83.6
42.5
-247.2
1 8 5 5 7 2 . 6 -- 3 6 9 2 . 8 T +
Series Value.
128
18.5 T
TABLE
***
POLYNOMIAL
Variable
Deflator
Time S e r i e s
Population
Fitted
POLYNOMIAL
SERIES
T '
YEAR
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
1 02
1 03
1954
1955
1956
1957
1958
1959
1960
1961
1 962
1963
1964
1965
1 966
1 967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1 981
1982
1983
1 984
1985
1 986
= Series
CURVE F I T T I N G
LEAD
1954 TO 1986 * * *
: L E A D , London M e t a l E x c h a n g e , FIGURES 2 0 ,
: W H O L E S A L E , P R O D U C E R P R I C E INDEX 1984=100
: Y E A R L Y , 1954 t o 1986
: 33
Curve:
QUADRATIC
3.
OF ORDER K = 2 ,
PRICE
(/tonne)
EQUATION :
QUADRATIC
FITTED PRICE
(/tonne)
724.6
777.5
817.7
655.9
490.6
477.1
479.8
415.8
357.4
397.7
615.1
673.7
544.5
473.8
553.5
642.3
619.0
473.9
524.3
705.8
827.8
489. 1
564.0
665.0
590.5
870. 1
516.1
436.9
347.9
297.5
332. 1
287.8
251 . 1
RESIDUA]
(/tonne
580.9
587.0
592.3
596.8
600.4
603.2
605.2
606.4
606.7
606.2
604.9
602.8
599.8
596.0
591 . 4
586.0
579.7
572.6
564.7
556.0
546.4
536.0
524.8
512.8
499.9
486.2
471 . 7
456.4
440.2
423.2
405.4
368.8
367.3
- 1 9 6 1 . 3 + 65.1
Value.
129
T -
21.
0.4
143.7
190.5
225.4
59.2
-109.8
-126.1
-125.4
-190.6
-249.3
-208.5
10.2
70.9
-55.3
-122.2
-37.9
56.4
39.3
-98.7
-40.4
1 49.9
281 . 4
-46.9
39.2
152.2
90.6
383.8
44.4
-19.5
-92.3
-125.7
-73.3
-99.0
-116.2
T
TABLE
***
POLYNOMIAL
Variable
Deflator
Time S e r i e s
Population
Fitted
POLYNOMIAL
SERIES
T
YEAR
96
97
98
99
100
101
1 02
1 03
1979
1980
1981
1982
1983
1984
1985
1986
= Series
CURVE F I T T I N G LEAD
1979 TO 1986
* * *
: LEAD, London M e t a l E x c h a n g e , FIGURES 2 3 ,

: Y E A R L Y , 1979 t o 1986
: 8
Curve:
QUADRATIC
4.
OF ORDER K = 2 ,
PRICE
(/tonne)
EQUATION:
QUADRATIC
FITTED PRICE
(/tonne)
870.1
516.1
436.9
347.9
297.5
332. 1
287.8
251 .1
RESIDUAL
(/tonne)
790.6
609.8
466.0
359.4
289.9
257.5
262.2
304.0
190973.8
Value.
130
3762.7
24.
T +
79.4
-93.7
-29.2
-11.5
7.7
74.6
25.6
-52.9
18.6
TABLE
***
POLYNOMIAL
Variable
Deflator
Time S e r i e s
Population
Fitted
POLYNOMIAL
SERIES
T
YEAR
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
1 02
1 03
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1 970
1 971
1972
1 973
1974
1975
1976
1 977
1 978
1 979
1980
1981
1 982
1 983
1984
1985
1986
= Series
CURVE F I T T I N G
ZINC
1954
TO 1986
***
: Z I N C , London M e t a l E x c h a n g e , FIGURES 2 8 ,
: W H O L E S A L E , P R O D U C E R P R I C E I N D E X 1984=100
: Y E A R L Y , 1954 t o 1986
: 33
Curve:
QUADRATIC
5.
OF ORDER K =
PRICE
( /tonne)
EQUATION :
LINEAR
FITTED PRICE
(/tonne)
588.0
656.9
686.9
553.7
444.2
554.3
593.8
503.3
428.3
480.8
717.6
661 . 4
583.6
568.1
604.5
634.2
602.9
579.7
656.1
1395.3
1729.1
884.8
888.7
634.9
532.4
537.6
431 . 8
510.8
476.0
536. 1
667.8
563.7
465.9
+ 479.4
1,
616.5
618.4
620.3
622.3
624.2
626.1
628. 1
630.0
631 . 9
633.8
635.8
637.7
639.6
641 . 6
643.5
645.4
647.4
649.3
651.2
653. 1
655. 1
657.0
658.9
660.9
662.8
664.7
666.7
668.6
670.5
672.4
674.4
676.3
678.2
+
Value.
131
1 .9
29.
RESIDUAL
(/tonne)
-28.5
47.5
66.6
-68.5
-180.0
-71 .8
-34.2
-126.7
-203.6
-153.0
81 . 9
23.7
-56.0
-73.5
-39.0
-11.2
-44.5
-69.6
4.9
742. 1
1074.0
227.8
229.8
-26.0
-130.4
-127.1
-234.8
-157.8
-194.5
-136.3
-6.5
-112.6
-212.3
TABLE
***
POLYNOMIAL
Variable
Deflator
Time S e r i e s
Population
Fitted
POLYNOMIAL
SERIES
T
YEAR
91
92
93
94
95
96
97
98
99
100
101
1 02
103
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
CURVE F I T T I N G
ZINC
1974
TO 1986
***
: Z I N C , London M e t a l E x c h a n g e , FIGURES 3 1 ,
: Y E A R L Y , 1974 t o 1986
: 13
Curve:
QUADRATIC
6.
OF ORDER K = 2 ,
PRICE
(/tonne)
EQUATION:
QUADRATIC
FITTED PRICE
(/tonne)
1729.1
884.8
888.7
634.9
532.4
537.6
431 . 8
510.8
476.0
536.1
667.8
563.7
465.9
RESIDUAL
(/tonne)
1376.4
1144.4
944.1
775.4
638.5
533.2
459.7
417.8
407.6
429. 1
482.4
567.2
683.8
155148.3
--
Series Value.
132
3131.7
32.
T +
352.7
-259.6
-55.3
-140.5
-106.1
4.4
-27.9
93.0
68.4
107.0
185.5
-3.6
-217.9
15.8 T
APPENDIX 5
ZINC PRICES FREQUENCIES
133
TABLE
***
1.
F R E Q U E N C I E S OF Z I N C P R I C E S
1954 T O 1986
Variable
: ZINC, London M e t a l Exchange
Deflator
Number
Mean
of
Values:
Variance
CLASS
( /tonne)
0.0
50.0
150.0
250.0
350.0
450.0
550.0
650.0
750.0
850.0
950.0
1050.0
1150.0
1250.0
1350
1 450
1 550
1650
1 750
,0
.0
,0
,0
,0
***
1984=100
33
647.4
pounds
66799.1
(pounds
FREQUENCY
sterling/tonne
sterling/tonne)
PERCENT
6
13
9
1
2
18.2
39.4
27.3
3.0
6.0
18.2
57.6
84.9
87.9
93.9
93.9
93.9
93.9
93.9
3.0
96.9
96.9
96.9
96.9
99.9
OUTLIERS
3.0
134
CUMMULATIVE
PERCENT

THESIS - Forecasting Metal Prices Using Geostatistics

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THESIS - Forecasting Metal Prices Using Geostatistics

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GEOSTATISTICS

The U n i v e r s i t y o f B r i t i s h Columbia, 1974

( Mining and M i n e r a l Process E n g i n e e r i n g )

scholarly purposes may be granted

The University of British Columbia

agree that permission for extensive

British Columbia, I agree that the Library shall make it

freely available for reference and study. I further

showed pure nugget e f f e c t and

s p h e r i c a l models which were used

models gave a good

London Metal Exchange.

of the data showed t h a t the requirement of s t a t i o n a r i t y

For copper each of the t h r e e time p e r i o d s were s t u d i e d

were most a c c u r a t e f o r copper and

a simple random walk u s i n g

METAL PRICE BEHAVIOUR AND PREDICTION

THEORY OF REGIONALIZED VARIABLES

THEORY OF RANDOM FUNCTIONS

TABLE OF CONTENTS cont'd

DATA AND METHODOLOGY

RESULTS AND DISCUSSION

FORECASTING 1987 and 1988

APPENDIX 1 LME CURRENT PRICES AND WHOLESALE PRICE INDEX

APPENDIX 2 EXPERIMENTAL SEMI-VARIOGRAMS

APPENDIX 3 SQUARED DIFFERENCES

APPENDIX 4 POLYNOMIAL CURVES

APPENDIX 5 ZINC PRICES FREQUENCIES

SUMS OF SQUARED DIFFERENCES COPPER

WEIGHTING FACTORS LINEAR

THEORETICAL LINEAR, SPHERICAL SEMI-VARIANCES

WEIGHTING FACTORS SPHERICAL

SUMS OF SQUARED DIFFERENCES LEAD

SUMS OF SQUARED DIFFERENCES ZINC

1987 AND 1988 METAL PRICE FORECASTS

LME CURRENT PRICES AND WHOLESALE PRICE INDEX

EXPERIMENTAL SEMI-VARIOGRAM, COPPER 1884 t o 1917

EXPERIMENTAL SEMI-VARIOGRAM, COPPER 1918 t o 1953

EXPERIMENTAL SEMI-VARIOGRAM, COPPER 1954 t o 1986

COPPER 1954 t o 1986

COPPER 1973 t o 1986

EXPERIMENTAL SEMI-VARIOGRAM, LEAD 1954 t o 1986

LEAD 1954 t o 1986

LEAD 1979 t o 1986

ZINC 1954 t o 1986

ZINC 1954 t o 1986

ZINC 1974 t o 1986

LIST OF TABLES cont'd

SQUARED DIFFERENCES, COPPER 1885 t o 1917

SQUARED DIFFERENCES, COPPER 1885 t o 1917

SQUARED DIFFERENCES, COPPER 1918 t o 1953

SQUARED DIFFERENCES, COPPER 1954 t o 1986

SQUARED DIFFERENCES, COPPER 1954 t o 1986

SQUARED DIFFERENCES, COPPER 1973 t o 1986

SQUARED DIFFERENCES, LEAD 1954 t o 1986

SQUARED DIFFERENCES, LEAD 1954 t o 1986

SQUARED DIFFERENCES, LEAD 1979 t o 1986

SQUARED DIFFERENCES, ZINC 1954 t o 1986

SQUARED DIFFERENCES, ZINC 1954 t o 1986

SQUARED DIFFERENCES, ZINC 1974 t o 1986

POLYNOMIAL CURVE, COPPER 1954 t o 1986

POLYNOMIAL CURVE, COPPER 1973 t o 1986

POLYNOMIAL CURVE, LEAD 1954 t o 1986

POLYNOMIAL CURVE, LEAD 1979 t o 1986