Abstract for: The classical Cobweb Theorem and real commodity market behavior: Modeling delayed adjustment of supply
In this paper we analyze how System Dynamics can help to better understand the dynamics of raw material markets and commodity price fluctuations caused by delayed adjustment of supply. We drew on the classical Cobweb Theorem and showed how this theorem can be successfully implemented into the System Dynamics approach. Regarding industrial metal markets, we systematically develop a simple model which helps to achieve a better understanding of dynamic market behavior and may be used as a flexible forecasting tool. On the example of the global copper market, we demonstrate how this simple market model can be merged with a physical material flow model capturing both technical aspects of raw material processing, recycling and substitution. This provides an explanation why linking physical material flows to a market model can add a substantial benefit for the systemic understanding. In a comparison of econometric forecasting methods we found System Dynamics models to be more intuitive and better suited to catch the structural market fundamentals.