Steel price forecasting is central to all investment decisions in the iron and steel sector. recent volatility in steel prices however, it has been unprecedented. International steel markets saw prices for hot rolled steel coils (largely a “benchmark” steel product) rise from less than $600/tonne in Q1 2008 to almost ~$1000/tonne in mid-2008. 2008. Just a few months later, in early 2009, the price of hot rolled coil was below $500/tonne, and similar price swings were observed for rebar. Rarely, if ever, have such abrupt and sudden changes in the international price of steel been witnessed.
Price expectations
For a few months after the start of the crisis, it was thought that it would be several years or even longer before prices returned to the dizzying levels of mid-2008. But in January 2011, discussions refocused on oil prices benchmark steel will reach $1,000/tonne in a matter of months. Thus, the stage is set for what may be much more variability in the price of steel in the future than has been apparent in the past. Under these circumstances, the ability to correctly judge future steel price movements becomes even more difficult.
An econometric price forecasting model
A statistical approach to price forecasting can be done using econometric modeling techniques. Econometrics is defined as the application of mathematical and statistical methods to the analysis of economic data, so the approach must be fit for the task. On this basis, MCI developed a mathematical model by which:
- Historical monthly prices for hot rolled steel coils and rebar were collected over a 16-year time horizon.
- Monthly prices were also collected for a variety of commodities, including crude oil (as an indicator of commodity prices, in general), natural gas (as a major energy source for steel pants), thermal coal (as an important fuel, for example, for steel power plants). ), metallurgical coal (used in the blast furnace), electricity prices (used to power electric arc furnaces), iron ore (as the main source of iron units for basic oxygen steelmaking), ferrous scrap ( as the main source of iron units for the manufacture of electrical steel)
- Statistical correlations (ie, the mathematical model) were established between steel products, on the one hand; and the prices of raw materials on the other.
Correlation factors
The previous steps allowed to develop a model between the historical price of hot rolled steel coil and rebar; and the other prices of raw materials. The approach showed that some factors, such as coal and scrap prices, correlated very well with the historical price of steel, while other price factors (for example, electricity prices) did not.
Thinking in the future
Looking ahead, independent estimates of future commodity prices were obtained from leading sources such as the World Bank and the Energy Information Administration. These forecasts were then connected to the previously obtained mathematical model. The result of this econometric modeling approach indicates that:
- the future projection is for the maintenance of relatively high future prices of hot rolled coils and steel bars, with
- average prices remain well above pre-crisis levels between now and 2015
- prices remained relatively constant between 2011 and 2013
- Further price increases are expected in 2014 and 2015, which will increase fob HRC/reinforcement prices by around USD 150/t in the medium term.
- but without returning to a scenario with fob steel prices of $1,000-$1,100/ton [prior to 2016].