ARTICLE IN PRESS

Resources Policy 32 (2007) 183–190

www.elsevier.com/locate/resourpol

Copper recycling and scrap availability

Fernando Gómeza, Juan Ignacio Guzmánb, John E. Tiltonc,!
a
Minera Escondida Limited, Chile
b
Mining Centre, School of Engineering, Pontificia Universidad Católica de Chile, Chile
c
Mining Centre, School of Engineering, Pontificia Universidad Católica de Chile, Chile, and Division of Economics and Business,
Colorado School of Mines, USA
Received 19 October 2006; received in revised form 13 June 2007; accepted 10 August 2007

Abstract

According to existing estimates, available old copper scrap has more than tripled over the past 40 years. Secondary production (that is,
copper produced from recycling old scrap), however, has only doubled. Indeed, over the past 10 years, while copper consumption and
primary production have continued to expand briskly, while available old scrap has increased by over 35%, secondary production has
actually stagnated.
For a world concerned with sustainable development and the quality of the earth’s environment, this performance is disappointing and
in need of explanation. Other things being equal, one would expect the amount of recycling to increase with the availability of scrap, as
many econometric models of the world copper market developed over the past several decades explicitly assume.
The key to understanding sluggish growth in secondary production, this paper argues, is distinguishing carefully between (1) the flow of old
scrap that arrives each year from products reaching the end of their useful lives during the year and (2) the available stock of old scrap that was
not recycled during earlier years presumably because it was too costly to do so. Using an econometric model, the paper shows that old scrap
stocks, which have contributed most of the increase in available old copper scrap over the years, have a very modest impact on secondary
production. Old scrap flows have a much greater effect, but they account for only about 4% of the available old scrap for any given year.
r 2007 Elsevier Ltd. All rights reserved.

JEL classification: Q24; Q31; L72

Keywords: Recycling; Secondary production; Metal scrap; Copper industry

Like other metals, copper is produced from ores and
scrap. It is customary to refer to the output from ores as
primary production and the output from recycling scrap as
secondary production. Scrap can be either old scrap, which
is the metal available for reuse in products that have come
to the end of their useful lives, or new scrap, which is the
scrap generated in the production process as goods
containing copper are made.1
!Corresponding author. Division of Economics and Business, Colorado
School of Mines, Golden, CO 80401, USA. Tel.: +1 303 273 3485;
fax: +1 303 273 3416.
E-mail addresses: Fernando.J.Gomez@bhpbilliton.com (F. Gómez),
jguzman@puc.cl (J.I. Guzmán), jtilton@mines.edu (J.E. Tilton).
1
For example, an aluminum beverage can once its contents are
consumed is old scrap, while the skeleton left after the tops for aluminum
cans have been punched out of a flat sheet is new scrap.
For the most part new scrap is inexpensive to recycle,
since it is easy to identify, sort, concentrate, and transport.
As a result, almost all new scrap is recycled. Moreover, new
scrap is not usually considered a net addition to supply.
This is because whether 5% or 25% of the metal used to
produce a given finished good ends up as new scrap and is
recycled does not affect the amount of the metal ultimately
embodied in the product. As a result, the availability and
recycling of new scrap is not considered further, and
references below to secondary production refer only to the
recycling of old scrap.
Over the past several decades various economic studies
have contributed to our understanding of copper and other
metal markets. Among these works are a number of
structural econometric models of the world copper
industry, including the works of Fischer et al. (1972),

0301-4207/$ - see front matter r 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.resourpol.2007.08.002
 ARTICLE IN PRESS
184 F. Gómez et al. / Resources Policy 32 (2007) 183–190

16000 300000
Primary
Production
14000
Secondary
Production 250000
12000 Available old
scrap

10000 200000
kton

kton
8000

6000 150000

4000
100000
2000

0 50000
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Fig. 1. World primary and secondary copper production (left axis) and available old scrap (right axis), 1966–2005.

Slade (1980), Vial (1988, 2004), and Valencia (2005). A old scrap increases largely because of old scrap stocks, as
common element in the studies cited is the assumption that has been the case (see Table 1), this will have a very modest
an increase in available old copper scrap, all else being effect on secondary production, and over time the share of
equal, increases the supply of secondary copper production available old scrap recycled will fall.
from old scrap. Section 2, which follows this introduction, develops a
As Fig. 1 shows, however, old copper scrap has roughly model to test this hypothesis. Section 3 describes the data
tripled over the past four decades while secondary used to estimate the model, and Section 4 discusses the
production from old scrap has increased much more results. Finally, Section 5 highlights the conclusions and
modestly. In fact, for a number of years, secondary examines some implications.
production has actually declined. As a result, secondary
production as a percentage of copper consumption has
Modeling secondary copper production
fallen, from 18 to 13 over the 1966–2005 period (see
Table 1).
A common specification for modeling secondary copper
Presumably part of the explanation for the falling
production—used for example by Fischer et al. (1972), Vial
proportion of available old scrap that is recycled is the
(1988, 2004), and Valencia (2005)—assumes that secondary
secular decline in the real price of copper over the
copper production (QSt) depends on the real price of
past several decades (Tilton, 2006). As for the failure of
refined copper (Pt), the available old scrap (At), the lagged
secondary production to grow as rapidly as primary copper
value of the secondary copper production (QSt!1), and a
production, this may in part reflect the fact that primary
disturbance term (et) as shown in Eq. (1)
producers have been more successful over time reducing
production costs, as Tilton (1999) suggests. QSt ¼ f ðPt ; At ; QSt!1 Þ þ !t . (1)
This study proposes another explanation as to why
The price of refined copper (Pt) is included for the usual
secondary copper production has failed to match the
reasons. Since the supply of secondary copper produced
growth in available old scrap, an explanation that to our
from old scrap should rise with price, the coefficient on this
knowledge is not found in the existing literature. During
variable is expected to be positive.
any given year, available old scrap depends on old scrap
The lagged dependent variable (QSt!1) can be justified
stocks and old scrap flows. Old scrap stocks encompass the
on the grounds that the adjustment of supply to changes in
scrap available but not recycled during the preceding year,
price and available old scrap may not be completed within
which as a result remains available for recycling. Old scrap
a year, and so a partial adjustment model is necessary. In
flows encompass the scrap that becomes available during
this case, the estimated coefficient for this variable should
the year as the products in which it is embedded reach the
be between 0 and 1.2
end of their useful lives.
However, some authors, including Fischer et al. (1972)
Our hypothesis is that old scrap stocks for the most part
and Valencia (2005), believe the response of secondary
are more costly to recycle than old scrap flows, as
producers, unlike that of primary producers, is sufficiently
presumably they were uneconomic to recycle in the past.
An increase in old scrap stocks, as a result, will have a very 2
For more on the partial adjustment model and the reasons why the
modest impact on secondary copper production. The coefficient for the lagged dependent variable is expected to be between 0
impact of old scrap flows will be much greater. If available and 1, see Pindyck and Rubinfeld (1998, chap. 9).
 ARTICLE IN PRESS
F. Gómez et al. / Resources Policy 32 (2007) 183–190 185

Table 1
Primary production, secondary production, consumption, LME price, old scrap flows, old scrap stocks, and available old scrap for the world copper
industry, 1966–2005

Year Primary Secondary Consumption LME price Pt Old scrap Old scrap Available old
production production QSt (kton) (US$ 2005/ flows AFt stocks ASt scrap At
(kton) (kton) ton) (kton) (kton) (kton)

1966 4858 1052 6007 7233 2574 81,522 84,096

1967 4613 1073 5762 5311 2839 83,288 86,127
1968 5126 1126 6130 5685 2839 85,001 87,841
1969 5540 1212 6678 6492 3075 86,864 89,939
1970 5555 1290 6769 6042 3316 88,890 92,205
1971 5698 1126 6700 4488 3466 91,229 94,695
1972 6363 1153 7322 4236 3544 93,620 97,164
1973 6605 1220 8106 6228 3624 96,024 99,648
1974 6869 1310 7702 6053 3708 98,422 102,130
1975 6586 1032 6780 3323 3629 101,019 104,648
1976 7008 1147 7939 3611 3630 103,503 107,133
1977 7262 1205 8495 3171 4036 106,334 110,370
1978 7266 1335 8913 3071 4245 109,243 113,488
1979 7328 1474 9250 3961 4098 111,868 115,966
1980 7319 1506 9045 3832 4172 114,533 118,705
1981 7728 1473 9153 2795 4616 117,677 122,293
1982 7451 1475 8534 2327 4804 121,006 125,811
1983 7702 1506 8699 2474 4963 124,463 129,427
1984 7908 1381 9578 2091 5214 128,296 133,510
1985 7864 1582 9353 2162 5447 132,161 137,608
1986 8444 1458 9794 2158 5640 136,343 141,982
1987 8503 1631 10,053 2737 5482 140,194 145,676
1988 8754 1756 10,521 3827 5601 144,039 149,639
1989 8986 1926 10,988 3992 6128 148,240 154,368
1990 8848 1945 10,849 3608 6371 152,666 159,037
1991 8744 1930 10,757 3159 6481 157,217 163,698
1992 9094 1946 11,164 3067 6516 161,787 168,303
1993 9380 1880 10,987 2530 7064 166,971 174,035
1994 9302 1808 11,553 3022 7430 172,593 180,023
1995 9744 2101 12,052 3705 7403 177,895 185,298
1996 10,689 1984 12,550 2824 7755 183,666 191,421
1997 11,386 2109 13,084 2807 7790 189,347 197,136
1998 12,020 2055 13,468 2091 8006 195,297 203,303
1999 12,445 2103 14,266 1974 8355 201,550 209,905
2000 12,649 2125 15,102 2152 8498 207,923 216,420
2001 13,724 1861 14,842 1851 8715 214,777 223,492
2002 13,443 1887 15,045 1870 8995 221,925 230,920
2003 13,464 1775 15,661 2028 9536 229,686 239,222
2004 13,835 2018 16,725 3078 9698 237,367 247,065
2005 14,562 2103 16,510 3684 9479 244,742 254,221

Sources: International Copper Study Group (2006) for primary and secondary production, as well as for consumption; Chilean Copper Commission
(2006) for LME price; and International Monetary Fund (2006) for US producer price index. Old scrap flows, old scrap stocks, and available old scrap are
estimated as described in the text.

rapid that a partial adjustment model is inappropriate
particularly when using annual data to estimate the model.
They justify the inclusion of a lagged dependent variable in
their models on the grounds that this variable serves as a
proxy for the difficulty of collecting old scrap. The idea
here is that the more old scrap recycled last year, the less
readily available old scrap is this year. As a result, they
anticipate a negative sign for the coefficient of this variable.
Available old scrap (At) is included as a proxy for the
costs of secondary production (Slade, 1980), which by their
nature are difficult to estimate directly. An increase in this
variable, it is assumed, means that more secondary copper
is economic to produce at any given price. The disturbance
term (et) reflects the net influence of all other variables.
Table 2 shows estimates from various studies for the
elasticities of secondary copper supply with respect to price
and available old scrap. Interestingly, in all those studies
where both short-run and long-run elasticities are esti-
mated, the former are greater than the latter. This is not
what one normally expects. In the context of a partial
adjustment model, these results imply that the market in
the short run over-adjusts to a change in price or available
old scrap, in the sense that the short-run increase in supply
motivated by a change in price or available old scrap is
 ARTICLE IN PRESS
186 F. Gómez et al. / Resources Policy 32 (2007) 183–190

Table 2
Estimated elasticities of world secondary copper production for the short and long runs with respect to available old scrap (eA) and price (eP) from selected
models

Fischer et al. (1972)a Slade (1980) Vial (1988) Intarapravich (1989)d Vial (2004) Valencia (2005)d

!ASR
0.69 0.40 0.79–1.25b – – 0.80
!ALR
0.50 – – – – 0.78
!PSR 0.42 0.28 0.33c 0.075 0.20 0.32
!PLR 0.31 – 0.26c – 0.11 0.31

– not available.
Sources: Studies cited in table.
a
Fischer et al. (1972) estimate three supply equations for secondary production: one for secondary production in the United States from new scrap, one
for secondary production in the United States from old scrap, and one for secondary production in the rest of the world from both new and old scrap.
Since elasticities of secondary production from new scrap and from old and new scrap combined are not of interest here, the elasticities shown for Fischer
et al. (1972) are only for secondary production from old scrap in the United States.
b
The range of figures shown covers the estimated elasticities for the particular areas considered, namely the United States, Japan, Germany, and the rest
of Europe.
c
The elasticities of secondary production for the world as a whole with respect to price for Vial (1988) are reported in Vial (2004).
d
Intarapravich (1989) and Valencia (2005) estimate linear equations, which implies that the elasticities vary as secondary supply and the other variables
vary. The figures shown in the table are the estimated elasticities at the average values of the variables over the 1966–2004 period for Valencia and over the
1950–1986 period for Intarapravich.

Table 3 relationship. This implies that the elasticities of supply with

Share of copper consumption and average product life by end-use sector respect to price, old scrap stocks, and old scrap flows are
as estimated by Slade (1980)
constant, and given by the coefficients for these variables.
Fraction of Average product life Our model also assumes that old scrap stocks contribute
consumption (%) (years) to secondary copper supply only during those years where
the price of refined copper is greater than that of the
Building and 24 30
construction previous year. At the beginning of any year t+1, the old
Transportation 14 17 scrap stocks inherited from the preceding year t equal what
Consumer durables 22 5 year t inherited from year t!1 plus old scrap flows in year t
Electrical and 23 30 minus secondary copper production from old scrap in year
electronic
t, as shown below
Industrial machinery 16 20

AStþ1 ¼ ASt þ AFt ! QSt . (3)

actually greater than the long-run response. As noted
above, Fischer et al. (1972) and Valencia (2005) suggest
these results can be explained by the fact that high
secondary production last year means less low-cost scrap
is available for recycling this year, and as a result the short-
run supply response to a change in price or available
old scrap actually is greater than the long-run response
(Table 2).
A shortcoming of the common model for secondary
copper supply, assuming that our hypothesis is correct and
consequently the costs of recycling old scrap stocks are for
the most part higher than those for old scrap flows, is its
failure to assess separately the influence of these two
variables. To correct this shortcoming and to test our
hypothesis, our model of secondary copper supply from
old scrap separates the available old scrap variable (At)
into its two components—old scrap stocks (ASt) and old
scrap flows (AFt)—as shown in the following equation:
QSt ¼ gðPt ; ASt ; AFt ; QSt!1 Þ þ !t .
Following Fischer et al. (1972), Slade (1980), and Vial
(1988, 2004), our model assumes that the variables in
Eq. (2) are related according to a double logarithmic
However, the old scrap stocks passed on to year t+1 are
unlikely to contain much if any old scrap that is economic
to recycle at the refined copper price that prevailed during
year t, since strong incentives existed to recycle that scrap
during year t.3 As a result, unless the refined copper price in
year t+1 (Pt+1) is greater than that of year t (Pt), the old
scrap stocks passed on to year t+1 (At+1) are unlikely to
contribute much to secondary copper production during
year t+1.
Given these conditions, the model of secondary copper
production from old scrap actually estimated is given by
ln QSt ¼ b0 þ b1 ln Pt þ b2 Dt ln ASt þ b3 ln AFt
þ b4 ln QSt!1 þ !t , ð4Þ
3
This assumes, of course, that new technology does not significantly
(2) reduce the cost of recycling scrap from one year to the next. While new
technology may appreciably reduce recycling costs over the longer run, its
short-run effects are normally more modest. It also assumes that
secondary copper capacity is not a binding constraint on secondary
copper production.
 ARTICLE IN PRESS
F. Gómez et al. / Resources Policy 32 (2007) 183–190
where
( scrapping of consumer durables) plus 14% of the total
0 if Pt pPt!1 ;
Dt ¼
1 if Pt 4Pt!1 :
Since increases in refined copper price, old scrap stocks,
and old scrap flows should all raise secondary copper
production from old scrap, the estimates for b1, b2, and b3
are expected to be positive. In addition, the estimates for b2
and b3 are expected to be less than 1 since a 1% increase in
old scrap stocks or flows is unlikely to increase secondary
production by 1% or more. The coefficient for b1 is also
expected to be less than 1, since it reflects the short-run
elasticity of supply with respect to price.
The coefficient for the lagged dependent variable (b4)
should also be less than 1. Assuming secondary producers
do not adjust completely within the year to changing
conditions and hence that the partial adjustment model is
applies, b4 equals 1–l, where l reflects the speed of
adjustment of the dependent variable (measured as the
change from one year to the next as a percentage of the
difference between the dependent variable’s current and
long-run equilibrium values). Since l is expected to be
between 0 and 1, the same is true for b4.
On the other hand, if Fischer et al. (1972) and Valencia
(2005) are correct in assuming that a partial adjustment
model is not appropriate, but rather that the lagged
dependent variable is needed to pick up the influence of
year-to-year changes in the difficulty of collecting old
scrap, then the estimate for b4 should be less than zero. It is
important to note, however, that our model directly takes
into account changes in the difficulty of collecting old scrap
by separating the influence of old scrap flows and old scrap
stocks and by assuming that old scrap stocks affect
secondary supply in year t only if the copper price in that
year is greater than in the previous year.
Finally, if our hypothesis regarding the costs of recycling
old scrap stocks and old scrap flows is correct, the elasticity
of supply with respect to old scrap flows should be greater
than the elasticity of secondary supply with respect to old
scrap stocks. This means that our estimates for b3 should
be greater than those for b2.
Data
The 40 years of data covering the period 1966–2005 used
to estimate Eq. (4) are shown in Table 1. The price of
refined copper was converted into real (2005) dollars using
the US Producer Price Index (IMF, 2006).
Like Valencia (2005), we have estimated annual old
scrap flows using the method of Slade (1980). She estimates
the percentage of total copper consumption used by the
construction, transport, consumer durables, electrical and
electronic, and industrial machinery sectors and the
average life of the copper-containing products in each of
these sectors, as shown in Table 3. She then assumes that
the old scrap flows for any given year t (AFt) equal 22% of
187
the total copper consumed 5 years earlier (from the
copper consumed 17 years earlier (from the scrapping of
autos and other transport equipment) plus 16% of the total
copper consumed 20 years earlier (from the scrapping of
industrial machinery) and finally 47% of the total copper
consumer 30 years earlier (from the scrapping of electrical
and electronic products as well as the demolition of
buildings and other construction projects).4
The figures for old scrap flows in Table 1 were estimated
in the same manner. Although the Slade article appeared
roughly in the middle of the period analyzed here, for at
least two reasons her methodology is likely to produce
measurement errors. First, her estimates for the allocation
of copper among major end use sectors and the average life
time for products in each sector are known to vary over
time. In addition, not all copper-containing products are
scrapped at exactly the average life expectancy for products
in their end-use sector. Some will come to the end of their
useful lives earlier and some later.
While it is difficult to assess the magnitude of the resulting
errors in measurement, they are likely to be most severe with
respect to year-to-year variations. Indeed, for any particular
year, a measurement error of 10% may well, in our judgment,
occur. However, over the longer run, errors introduced by the
earlier-than-expected or later-than-expected scrapping of
copper-containing final goods are likely to cancel out. As a
result, the estimated figures should more accurately reflect the
long-run trends in old scrap flows than year-to-year fluctua-
tions. In a similar manner, cyclical (though not secular)
changes in the shares of copper consumption by end-use
sectors may also offset each other to some extent.
The figures for old scrap stocks were estimated using a
procedure employed by Jolly and Maryland (2003). They
assume that old scrap stocks were 80,000 ton in 1966, and
then calculate the value for each subsequent year by adding
each year’s old scrap flows and subtracting its secondary
copper production (as shown earlier in Eq. (3)). While the
assumption that old scrap stocks totaled 80,000 ton in 1966
is somewhat arbitrary, it only affects the level of the old
scrap stocks variable, and not year-to-year changes, and so
should not greatly affect our results. Indeed, the latter were
quite similar when old scrap stocks for 1966 were assumed
to be 40,000 and 120,000 ton, instead of 80,000 ton.
Finally, the data for available old scrap is calculated by
adding for each year old scrap flows to old scrap stocks.
Results
The coefficients of Eq. (4) estimated using Ordinary
Least Squares are shown in Table 4 under the first column
headed OLS. As expected, the estimates for b1, b2, and b3
are all positive. The first and third coefficients are
statistically greater than zero (using a one-tailed test) at
4
Slade does not explain why these figures sum to 99% rather than
100%, but presumably the explanation is rounding errors.
 ARTICLE IN PRESS
188 F. Gómez et al. / Resources Policy 32 (2007) 183–190

Table 4 Table 5
Empirical results using OLS and ridge regressions Short-run and long-run elasticities of secondary copper supply with
respect to price, old scrap flows, and old scrap stocks estimated by OLS
OLS RR (rHKB ¼ 0.029) RR (rMSE ¼ 0.051) and ridge regressions

b0 !0.4947 (!0.72) 1.7813 (124.22) 1.7808 (138.71) Pt AFt ASt

b1 0.1070 (2.35) 0.2013 (41.60) 0.2086 (57.66)
b2 0.0033 (1.45) 0.0105 (2.42) 0.0156 (3.12) OLS r ¼ 0.029 OLS r ¼ 0.029 OLS r ¼ 0.029
b3 0.2431 (2.25) 0.2257 (68.77) 0.2176 (86.20)
b4 0.6653 (4.39) 0.2601 (97.27) 0.2529 (114.79) !SR 0.107 0.201 0.243 0.226 0.003 0.011
adj-R2 0.917 0.542 0.338 !LR 0.320 0.272 0.726 0.305 0.009 0.014
a a
DW 1.96
g 980.3 76.4 58.0

The figures shown in parentheses are t-statistics. Table 6

a
Since the estimated coefficients for the ridge regressions are biased, the
Durbin–Watson statistic does not provide a valid test for autocorrelation
(Pindyck and Rubinfeld, 1998).
the 5% probability level, and the second at the 8% level. In
addition, as expected, all three estimates are less than 1.
The estimate for b1 suggests that a 1% increase in price
promotes a 0.107% increase in secondary copper produc-
tion in the short run (that is, during the year in which the
price change occurs). Similarly, the estimates for b2 and b3
imply that a growth of 1% in old scrap stocks or in old
scrap flows is associated with an increase of 0.003% or
0.243% in secondary copper production.
The estimate for b4 also is greater than 0 and less than 1.
The fact that it is statistically different from 1 as well as 0 at
the 5% level suggests that secondary producers do not fully
adjust to new conditions within a given year, and
consequently that a partial adjustment model may be
appropriate. Indeed, the estimate for b4 (0.665) implies that
the rate of adjustment (l) of the dependent variable towards
it long-run equilibrium value is 0.335% or 33.5% a year.
With the estimate for b4, we can also estimate the long-
run elasticities of secondary copper supply with respect to
price, old scrap flows, and old scrap stocks.5 The results
shown in Table 5 under the column headed by OLS
indicate that the long-run elasticities are almost three times
as large as the short-run elasticities. Secondary copper
production increases over the long run 0.32% in response
to a 1% rise in price, 0.73% in response to a 1% rise in old
scrap flows, and a mere 0.01% in response to a 1% rise in
old scrap stocks.
Finally, as expected, the estimate for b3 is greater than
that for b2, and the difference is significant. The hypothesis
that b2 is equal to or greater than b3 can be rejected at the
98% confidence level. Moreover, the point estimate for b2
at 0.003 is quite close to 0, suggesting as anticipated that
increases in old scrap stocks have a very modest impact on
copper recycling, far less than increases in the old scrap
flows. Indeed, a doubling of old scrap stocks produces less
than a 1% increase in secondary production.
In considering these results, one should note a few
caveats. First, OLS produces biased estimates when the
Correlation matrix for explanatory variables
ln(Pt) ln(AFt) ln(ASt) ln(QSt!1)
ln(Pt) 1 !0.8527 0.3067 !0.7725
ln(AFt) – 1 0.1541 0.9313
ln(ASt) – – 1 !0.2604
ln(QSt!1) – – – 1
equation suffers from simultaneity or the data possess
measurement errors. While Eq. (4) presumes that the price
of refined copper influences the supply of secondary
copper, price in turn depends on total copper supply of
which secondary supply is a part. (However, over the
period considered secondary supply accounted at most for
only 19% of total supply and on average only about 16%.
As a result, any bias in our estimated coefficients caused by
simultaneity is not likely to be great.) Similarly, as noted
earlier, our data, especially the estimates for old scrap
stocks and old scrap flows, do contain measurement errors.
In such cases, instrumental variable (IV) techniques,
including 2SLS, are often employed. While their estimates
are also biased, they have the advantage of being consistent.
The benefits of using IV techniques for estimating Eq. (4),
however, seem questionable since the sample size is only 39
years, making consistency of little importance.
There is some evidence that the results may suffer from
multicollinearity. Table 6 shows that several pairs of the
explanatory variables are highly correlated. The condition
number (g) test for multicollinearity also raises concerns.
According to Green (1998) and others, a value for this test
above 20 or 30 suggests possible problems, while the value
for our data is g ¼ 980.
Fortunately, multicollinearity does not bias or otherwise
adversely affect the properties of our OLS estimators. The
problem normally associated with multicollinearity is
statistically insignificant parameter estimates. Our results,
however, are consistently significant at relatively low
probability levels. This suggests that the presence of
multicollinearity can probably be ignored.
To be certain, however, we re-estimated the parameters
of Eq. (4) with ridge regression.6 This technique uses the

5 6
For an explanation of how this is done, see Pindyck and Rubinfeld For more on ridge regressions, see Green (1998), Guilkey and Murphy
(1998). (1975), Marquardt and Snee (1975), and Vinod (1978). Principal
 ARTICLE IN PRESS
F. Gómez et al. / Resources Policy 32 (2007) 183–190 189

following estimators: flows, and old scrap stocks are only 1.35 times greater than
their short-run values rather than nearly three times
b^ ¼ ½X 0 X þ rD'!1 X 0 Y , (5) greater, as shown in Table 5.
Of particular importance for our purposes, the results of
where D is a diagonal matrix whose diagonal elements are the ridge regressions continue to show a much greater
coincident with those of the matrix X0 X and r is a scalar response of secondary production to a change in old scrap
chosen arbitrarily. Compared with those for OLS, the flows than old scrap stocks, a difference that is now
resulting parameter estimates are biased but have smaller statistically significant at the 1% level. And, as noted
variances. above, the very large increase in old scrap stocks continues
Though there are many different ways to select the value to have only a very modest effect on secondary production.
of r (Judge et al., 1985), two are most often used. The first
is the Hoerl–Kennard–Baldwin rHKB, which is calculated Conclusions and implications
as shown below
The secondary industry accounts for only a small share
ks^ 2 (less than 20%) of total copper production. In addition, the
rHKB ¼ 0 , (6)
b^ b^ industry contains many small and secretive firms, making
comprehensive and reliable data difficult to obtain. For
where k is the number of parameters in the model (five in
these and other reasons, economists and others have
our model), and b^ and s^ are the estimates for these
devoted relatively little time to studying secondary
parameters derived using OLS. The resulting value of rHKB
producers. While this is now changing due in part to the
for our study is 0.029. The estimated coefficients using
growing concerns about the environment and sustainabil-
ridge regression with this value for r are shown in the
ity, there is still much that we do not understand about
second column of Table 4.
their behavior.
The second common method for determining r is to
One enigma—the focus of this analysis—is why over the
select the value that minimizes the mean square error of the
past four decades as the available old scrap has increased
estimation (Smith and Campbell, 1980), and thus obtain
substantially, the recycling of old scrap has not kept pace.
the most efficient set of estimators. The result is an rMSE
Other things being equal, we would expect this to be the
equal to 0.051. The results obtained when Eq. (4) was then
case, as is commonly assumed in econometric models of the
re-estimated using ridge regression with this value for r are
world copper industry. Of course, other things do change,
shown in the third column of Table 4.
and certainly part of the explanation for the failure of
Comparing the estimates derived from the ridge regres-
secondary production to grow as rapidly as expected can be
sions with those from OLS, we find that the estimates for
attributed to the decline in the real price of copper since the
b1, b2, b3, and b4 all continue to have values between 0 and
early 1970s, a decline driven largely by the highly successful
1. The estimated value for b1, the short-run elasticity of
efforts of primary copper producers to reduce their
secondary supply with respect to price, roughly doubles
production costs over this period (Tilton, 2006).
from its OLS value of 0.107, and increases in significance.
This study suggests another explanation has also played
The estimated value for b3, the short-run elasticity of
an important role. Available old copper scrap during any
secondary supply with respect to old scrap flows, declines
particular year consists of the old scrap stocks inherited
slightly from 0.243 to a low of 0.218, and becomes
from the preceding year and the old scrap flows returning
increasingly significant. The estimated value for b2, the
to the market during the year. Since old scrap stocks were
short-run elasticity of secondary supply with respect to old
not recycled in prior years, their recycling costs are
scrap stocks, rises from 0.003 to 0.016, a considerable
presumably relatively high, and hence one would expect
increase. However, even this higher value suggests that a
any given growth in old scrap stocks to increase secondary
doubling of old scrap stocks produces only a 1.6% increase
production less than the same growth in old scrap flows.
in secondary production.
Empirical analyses of secondary production over the
Finally, the estimate for b4 declines from 0.665 to a low
1966–2005 period strongly support this hypothesis. They
of 0.253, and becomes increasingly significant. The
also show that the influence of old scrap stocks, though
economic implication is that the response of secondary
positive and statistically significant, is very modest. Indeed,
production to a change in price, old scrap flows, or old
a doubling of old scrap stocks even in the long run
scrap stocks is much faster, with some 75% of any
apparently produces less than a 2% increase in secondary
difference between the current level of secondary produc-
production. A doubling of old scrap flows, however, may
tion and its long-run equilibrium level being realized within
in the long run produce a 73% increase. While the influence
a year. This in turn means that the long-run elasticities of
of both old scrap stocks and old scrap flows on copper
secondary supply with respect to changes in price, old scrap
recycling are positive and significant statistically, only old
(footnote continued) scrap flows are really important.
components is an alternative technique for dealing with multicollinearity These findings have several implications. First, they
(Green, 1998). provide some support for the view advanced by Gordon
 ARTICLE IN PRESS
190 F. Gómez et al. / Resources Policy 32 (2007) 183–190
et al. (2006) as well as others that copper scrap if it is not
recycled soon after returning to the market will rarely be
reused. While dramatic new technology may in the future
make it profitable to reprocess the copper scrap in
municipal and other waste sites, over the past 40 years
the amount of new copper produced from old scrap stocks
has been very modest.
Second, the findings suggest that the future of the
secondary copper industry is much more closely tied to old
scrap flows. Over time these flows should follow with a lag
the growth in total copper consumption and the allocation
of consumption among its principal end uses.
Finally, econometric models and other economic ana-
lyses of the copper industry need to consider separately the
effects of old scrap stocks and old scrap flows on secondary
production. When the two are lumped together as available
old scrap the estimated coefficient is a weighted average
hybrid of their individual influences, a hybrid that over-
estimates the influence of an increase in old scrap stocks
and underestimates the influence of an increase in old scrap
flows.
Acknowledgments
The authors are grateful to Roderick G. Eggert and
Claudio Valencia for their helpful comments.
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