Optimal Portfolio Analysis Of International Commodity Buffer Stocks: The Case For Nonferrous Metals

INTRODUCTION Interest in multicommodity stabilization schemes has increased recently for several reasons, a most important one being the experienced wide swings in primary commodity prices. These prices rose sharply between mid - 1972 and end - 1974 giving commodity exporting countries an opportunity to gain sizeable increases in export earnings. But since then, prices have tumbled and these countries are searching for a means to stabilize if not to increase their earnings. While this problem is particularly serious for developing countries, the developed countries are concerned about the impending upward price swing, which would increase inflation before recovery from the world recession is assured. As a direct consequence of the emergency meeting of the U.N. General Assembly devoted to commodity problems in April of 1974, interest has been renewed in the Keynesian (4) plan for an international multicommodity buffer stock program. In particular, UNCTAD (8) is designing an integrated commodity scheme to be discussed within that body. In terms of approaches that have appeared in designing such a program, none exist which relate to the interpretation of the independence and interdependence of prices of the commodities of interest. Typical criteria for selecting commodities for the scheme have included their importance in world trade, their particular origin from developing countries, and their feasibility for storage. But the financial management of a multicommodity buffer stock requires a consideration of commodity prices, yields, and risks as does as any portfolio of assets. The approach which we take in this study is that of application