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8-1-1979
Market Structure and Econometric Modeling: A
Case Study of the World Zinc Industry
Satyadev Gupta
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Gupta, Satyadev, "Market Structure and Econometric Modeling: A Case Study of the World Zinc Industry" (1979). Open Access
Dissertations and Teses. Paper 3221.
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MARKET,STRUCTURE AND ECONOMETRIC MODELING:
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A CASE STUDY OF WE WORLP ZINC INDUSTRY. ' ,
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SATYADEV GUPTA, M.A.'
A Thesis
submitted to the School of Graduate Studies
in Partial Fulfilment of the Requirements
for the Degree '
Doctor of Philosophy
McMaster University
-August 1979

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THE WORLD ZINC INDUSTRY


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DOCTOR OF PHILOSOPHY (1979)
(Economics)
McMASTER UNIVERSITY
Hamilton, Ontario
TITLE: Market Structure and Econometric
A Case Study of the World Zinc Industry
AUTHOR: Satyadev Gupta, (Gujarat University)
M.A. (University of De1h!)
M.A. (McMaster University)
SUPERVISOR: Professor J.R. Williams
NUMBER OF xiv, 296
ii
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ABSTRACT
Zinc, a non-ferrous metal, is consumed as an inter-
mediate input in construction and a wide variety of manu-
facturing industries. Canada, Australia, Peru and Mexico
together produce about 55 percent of the total output but
absorb only about 8 percent of the total zinc consumed in
the free market world. On the other hand, U.S.A., Japan
and the E.E.C. countries together share in about 72 percent
of the total consumption but produce only 25 percent of the
total zinc ores produced in the free market world. These
large imbalances in production and consumption of zinc
place it in the group of important international primary
commodities. The major aims of this study are to provide
a systematic of the institutional and beha-
vioral characteristics of the world zinc industry, and to
analyse its performance properties in the framework of a
formal model of the international market.
A detailed study of the organisational structure
of the industry reveals that as many as 24 corporate groups
(including their multinational operations) share in about
,
65 percent of the raw zinc produced in the free market
.\.-/
world. In the absence of any other information to the
iii
contrary, this low degree of concentration in terms of
market control is taken as an evidence for the absence of
non-competitive behavior on the sellers' side. However,
the working of the free market forces has, often, been
influenced by the intervention of the u.s. Government
through its stockpile program, tariffs, quotas, and other
measures for the protection of the domestic industry. This
environment, in turn, has enabled the major u.s. producers
to exercise some degree of control on the domestic market
through the variations in their stocks of zinc and capacity
utilisation ratio. However, the world market on the buyers'
side consists of a large number of small consumers of zinc
providing a competitive environment.
A fairly detailed market form of econometric model

is built, based on the above institutional framework and


relevant technological and behavioral estimated
version of the model indicates different systems of lag
responses in the structures of demand and supply to the price
of zinc, a very poor substitutability on the demand side,
free market price as a long-run equilibrator for the U.S.
producers' price, and an important influence of the U.S.
interventions on the world market. The model meets reason-
ably well the predictability criterion based on the technique
. dynamic simulation. The performance properties of the
world zinc industry, analysed through dynamic multiplier
(
iv
simulation technique, show that the industry exhibits a
....
reasonably stable markJt environment to the exogenous dis-
turbances such as an increase in the activity levels of
consumers and variations in the prices of substitutes. It
is, however, quite sensitive to technological changes
in the consumer industries. The stockpile policy of the
U.S. Government does not seem to be properly geared to its
objectives, and, in general, it seems to have restricted
the development of the industry as a whole.
Despite the usual limitations of a first systematic
study, it is hoped that this work will contribute towards a
better understanding of the salient features of the
inoustry, provide a reasonably sufficient scope for broad
policy evaluations, and facilitate the forecasting of the
behaviour of major market variables.
v

ACKNOWLEDGEMENTS
I wish to express my deepest gratitude to the
members of my supervisory committee, Professors J.R.
williams (Chairman), F.T. Denton and R.A. Muller, for
their continuous help and inspiration at all stages of
this dissertation. Also, I must mention Professors
F.G. Adams and J.R. Behrman, in the same spirit, for
their valuable help in the preparation of this thesis
during my visit at the University of Pennsylvania. In
addition, I would like to thank Dr. A.V. Cammarotta Jr.
and Dr. W.Y. Mo of the U.S. Bureau of Mines for helpful
discussions on the subject.
Many institutions have provided financial and
other support for this study. More p a r ~ ~ l a r l y . I wifh
to acknowledge my gratitude to McMaster University for\a
generous fellowship and the Universities of Delhi and
the West Indies for study leave and grants. I am also
grateful to the University of Pennsylvania for providing
various facilities during my stay as a visiting r e ~
student.
/
vi
...
I would also like to thank my teachers and
colleagues, ProfessQrsA.L. Nagar and A. Bhaduri of the
uni'versi ty of Delhi, Professors P.J. George, A.A.
Kubursi, A. Ahmad, and R.W. Thompson of McMaster Univer-
sitYI and Dr. E.B.A. St. Cyi of the University of the
West Indies for their help and encouragement.
I also owe a deep sense of appreciation to
wife Sarita and Hansa, and my parents and other
of the family for their patience, support and
encouragement during the course, of the study. Finally,
I am"very thankful to Mrs: V. Youssef for suggesting
linguistic improvements in
and Mrs. J. Prempeh for
the jeSiS, and Mrs. J. Nicholson
typing
assistance. I alone, however, bear the
'-
far any shortcomings' of the study.
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CHAPTER.I
CHAPTER II
TABLE OF,CONTENTS
Introduction and Outline
1. Introductory Remarks
2. Basic ,Aims and Overview of
the Study
3. Organisation of the Study
The International Market for Zinc
l. World Supply of Zinc
2 . World Demand for Zin9
3. International Trade
4. The Price System'
S. National Policies and the
Inte:r;national Market
Appendix, Chapter II
(Technological Aspects of Pro-
duction and Consumption, and
Major Uses of Zinc)
1
1,
4.
7
10
11
28
40
46
60
71
90
v,
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CHAPTER III Organisational Structure of 'the
, World Zinc Industry
1. Corporate Structure of
World Zinc ~ l i n i n g Industry 92
viii
150
151
165
CHAPTER ,IV

Page
2. Vertical Integration and
the Corporate Structure ,of
the Smelting Industry 99
3. Future Developments' and
Corporate Control 108'
'4. International Organisations 118
Chapter III 133
(Organisational Structure, A
Historical Perspective)
Econometric Modeling of Mineral
Industries: ,A Survey and Specifi-
cation of a Model for Zinc
1. Models of Mineral Commodi-
ties, A Survey
2. Organisational Structure
and Modeling of the World
zinc Industry 160
3. A General Specification of
the Model of the World
Zinc 'Industry
Econometric Estimation of the
of the World Zinc Industry 183
ix
r
,

Page
1. General Remarks on Methodo-
logy and Data 185
CHAPTER VI
2. Modell Estimation Results 188
3. Model 2 Estimation Results 206
List of Variables and Their Symbols 215
Performance of the Models of the
CHAPTER VII
CHAPTER VIII
World Zinc Industry
1. Methodological Remarks
2. Modell Simulations
3. Model 2 Simulations
Dynamic Multiplier Simulations
with the Econometric Models
1. MUltiplier Simulation
Experiments
2. Results of Multiplier
Simulation Experiments
Summary and Conclusions
1. Organisational Structure
222
222
227
235
-244
-245
248
258
259
2. Model and Results of Estimation 262
3. Test of Performance and
Applications
4. Concluding Remarks
270
275
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APPENDIX A
BIBLIOGRAPHY
Charts of Dynamic Simulations(Model 2) 278
291
x
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Table
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11.2
II. 3'
11.4
II.5

11.6
II. 7
II.8
II .A.l
.II.A.2
II. A. 3
IILI
III.2
LIST OF TABLES
Description
World Zinc Resources, 1973
F.M.E. World Zinc Ore Production
F.M.E. World Zinc Metal Production
Closure of U.S. Zinc Smeltors, 1969-73
Supply-Demand Imbalances in F. M.E. World,

F.M.E. World Zinc in Concentrate Trade,
1974
F.M.E. World Zinc Metal Trade, 1974
U.S. Government Stockpile of Zinc, 1945-75
World Consumption of Zinc Metal by Sector
of Intermediate Demand 1956-74
U.S. Consumption of zinc by Sectors of
Final Demand 1956-73
Zinc by-product and co-product .
ship in the U.S.A., 1973
Corporate Structure of F.M.E. World Zinc
Ore Production
Corporate Structure of F.M.E. World
Smeltor Production
xi
Page
14
18
23
25
42
44
44
66
75
76
86
93
100
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page
Table Description
III.3 Vertical Integration 101
III.4 F.M.E. World Smeltor Capacity, 1974-80 110
III. 5 - Structure of the Canadian zinc Industry 123
III. 6
III.7
III. 8
III. 9
Structure of the Australian Zinc
Industry
Structure of the Japanese Zinc Industry'
Structure of the European Zinc Industry
"'
Structure of the United States Zinc
Industry
124
125-6
127-9
130-2
V.l A Comparison of Price and Income
Elasticities of Demand, ~ I D d e l 1 and
Model 2 208
V.2
VIol
VI. 2
Estimates of Demand Equations, Model 2
Sample Period Dynamic Simulation Errors
(1965-74 )
The World Zinc Industry: Dynamic
210-14
226
VI. 3
VII. 1
Simulation, Model 1
The World Zinc Industry: Dynamic
Simulation, Model 2
Multiplier Simulations: An Increase in
the Economic Activity in the World
,
232-4
237-43
249
VII.2 MUltiplier Simulations: A Technological
Change in the Automobile Sector
xii
250
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VII. 3
Page
Description

I
Multiplier Simulations: An increase
in the Price of Aluminium by the
VII.4
International Bauxite Association
Multiplier Simulations: A Change in-
253-4
the U.S. Government Stockpile Policy 256
xiii

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