Monopolistic supply management in world metals markets: How large was Mount Isa?

Standard arguments suggest that mining companies lack sufficient market share to allow profitable exercise of monopoly power. However, low production and consumption elasticities can lead to prices being very sensitive to small supply disruptions. Metals are durable commodities. Supply from stock can offset the impacts of low elasticities in the short run but stocks also prolong the impact of any supply restriction. The interaction between storage and low elasticities can confer pricing power on a producer with a modest market share. I illustrate by looking at Glencore’s “disciplined” supply response when, in October 2015, the company announced a 30% cutback in zinc production. The zinc price more than doubled over the two subsequent years.