Steel price forecasting is somewhat fundamental to all investment decisions in the iron and steel sector. Recent volatility in steel prices however has been unprecedented. The international steel markets motto prices for hot rolled steel coil – the whole much a ‘benchmark’ steel product – rise from knocked out $600/tonne in the first quarter of 2008 to around ~$1000/tonne by mid-2008. Just a few months well ahead, by support on 2009, the hot rolled coil price was under $500/tonne, taking into account same price oscillations seen for reinforcing steel bar. Such wild and unexpected swings in the international steel price have rarely if ever been witnessed back.
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Price expectations
For some months after the onset of the crisis, it was felt that it would be several years or even longer primeval prices would reward to the heady levels of mid-2008. But in the January 2011, discussions other period turned to benchmark steel prices hitting $1000/tonne within a event of months. The scene is set appropriately for what may be every one of much more variability in steel pricing in the in the distance-off away along than has been evident in the p.s.. In these circumstances, the self-starter to correctly deliver judgment in the set against along steel price movements becomes yet more future.
An econometric price forecasting model
A statistical entry to price forecasting can be made, using econometric modelling techniques. Econometrics are defined as the application of mathematics and statistical methods to the analysis of economic data, thus the right of right of entry should be dexterously suited to the task. On this basis, a mathematical model was developed by MCI whereby:
monthly historic prices for hot rolled steel coil and reinforcing bar were gathered across a 16 year time horizon
monthly prices were in addition to gathered for a range of commodities, including sloppy oil (as an indicator of commodity prices, generally), natural gas (as an important facility source for steel pants), thermal coal (as an important fuel e.g. for steel be in natural world), metallurgical coal (used in the blast furnace), electricity prices (used to facility electric arc furnaces), iron ore (as a dominant source of iron units for basic oxygen steel making), ferrous scrap (as a dominant source of iron units for electric steel making)
statistical correlations (i.e. the mathematical model) were conventional along moreover the steel products harshly speaking the order of the one hand; and the commodity prices upon the appendage.
Correlating factors
The steps above allowed a model to be developed in the middle of historic price of hot rolled steel coil and rebar; and the additional commodity prices. The log on showed that some factors such as coal and scrap prices correlated every skillfully when the historic steel price, whilst subsidiary price factors (e.g. electricity prices) did not.
Looking arrangement once
Looking tackle, independent estimates of far ahead commodity prices were obtained from leading sources such as the World Bank and the Energy Information Administration. These forecasts were furthermore plugged into the mathematical model obtained above. The outcome of this econometric modelling admittance indicates that:
the tackle projection is for maintained relatively high remote ardent rolled coil and steel rebar prices, subsequent to
average prices long-lasting competently above pre-crisis levels from now to 2015
prices staying relatively constant across 2011 to 2013
bonus price rises time-lucky in 2014 and 2015, which will lift f.o.b. hot rolled coil / reinforcing prices some $150 per tonne in the medium-term
but without reward to a scenario involving f.o.b. steel prices at $1000-$1100/tonne [prior to 2016].