Assessing the Impact of the Slack Demand for Metals

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College of Business


The growth in world demand for metals has slowed considerably since 1974, but the resulting problems for producers have been compounded because this slack demand was largely unanticipated and unrecognized until the early 1980s. Capacity thus continued to expand, based on expectations of recovery to the previous high growth rates in consumption. When this recovery did not materialize, a prolonged period of low real prices, loss of profitability, and plant closures resulted. The losses due to delayed recognition and adjustment may total as much as several billion dollars. These problems point out the danger of relying on extrapolations of past time trends rather than developing a fundamental understanding of the factors which determine metal demand when planning future productive capacity.

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© 1988

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