MCI Steel Price Projections Report

WORLD STEEL PRICE
PROJECTIONS
ECONOMETRIC MODELLING REPORT

April 2011
Metals Consulting International Limited

http://www.steelonthenet.com
Metals Consulting International Limited Research Report
CONTENTS Page
CONTENTS 1
……………………………………………………………………........
DISCLAIMER 2
………………………………………………………………………
1. INTRODUCTION 3
…………………………………………………………....
1.1 Background 3
……………………………………………………………..
1.2 Objective of this report 3
………………………………………………….
1.3 Sources of information 4
………………………………………………….
1.4 Abbreviations 4
…………………………………………………………...
1.5 Product definitions and price levels 5
……………………………….........
2. HISTORIC STEEL PRICES 6

…………………………………………………
2.1 Price levels and price 6
volatility……………………………………….....
2.2 Historic data 7
…………………………………………………………….
3. FUTURE STEEL PRICES 8

…………………………………………………...
3.1 The MCI econometric model 8
…………………………………………...
3.2 Strong and weak correlations 9
…………………………………………...
3.3 Leading steel price indicators 13
…………………………………………...
3.4 Steel price predictions to 2015 13
………………………………………….
4. CONCLUSIONS 16
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5. APPENDICES 17
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Appendix 1: Average world HRC and rebar prices 1996-2010 18
……………...
Appendix 2: Historic prices of selected commodities, 1996-2010 20
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Appendix 3: Metallics prices, 1994-2010 23
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Appendix 4: Price projections for selected commodities 24
Econometric modelling report – steel prices – April 2011 Page 1

………………….....
Appendix 5: Price projections for hot rolled coil and rebar 2011- 25
2015……...
Appendix 6: F.o.b prices versus market prices – the year 2010 differential 26
…
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DISCLAIMER

The viewpoints contained in this report are based in large part on information gathered from the public domain
and on expert opinions developed by MCI. Readers are however advised to supplement the information and
opinions contained in this report with advice from their own professional advisers as investment or other
decisions based solely on the information contained herein may not result in expected outcomes.
Moreover, whilst the views contained herein are considered by MCI to be sound, MCI makes no
representation as to the accuracy or completeness of the information [including projections provided]. MCI
has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event
that any matter stated herein, or any opinion, projection, forecast or estimate set forth changes or subsequently
becomes inaccurate. The report is provided for informational purposes only. It is not to be construed as an
offer to buy or sell, or as a solicitation of an offer to buy or sell any financial instrument or asset, or to
participate in any particular trading or investment strategy.
In no event shall MCI or any other party involved in marketing or distributing this study accept any liability
for any direct, indirect, special, punitive, consequential or any other damage associated with use of this report.
Use of this study is subject to acceptance of these terms.

1. INTRODUCTION
1.1 Background
Recent price volatility in the international steel markets saw prices for hot rolled steel coil –
which is very much a ‘benchmark’ steel product – rise from under $600/tonne in the first
quarter of 2008 to almost ~$1000/tonne by mid-2008. Just a few months later, by early 2009,
the hot rolled coil price was under $500/tonne, with similar price oscillations seen for
reinforcing steel bar (Exhibit 1.1). Never in recent history had such wild and sudden swings
in the international steel price been witnessed before. For some months after the onset of the
crisis, it was felt that it would be several years or even longer before prices would return to
those heady levels of mid-2008. But in the January 2011, discussions again turned to
benchmark steel prices hitting $1000/tonne within a matter of months1.
Exhibit 1.1: Historic prices of hot rolled coil and rebar
Source: http://www.steelonthenet.com. Figures are average world f.o.b. export prices.
The scene is set therefore for what may be very much more variability in steel pricing in the
future than has been evident in the past. In these circumstances, the ability to correctly judge
future steel price movements becomes yet more difficult. Among the main providers of
historic and future steel price data2, few of the experts offer insights into steel price
forecasting methodology. Yet billions of dollars of capital spend in iron and steel plant are
often underpinned by price projections which are central to the financial evaluations
associated with these investments.
1.2 Objective of this report
The objective of this report is to offer some insights into the econometric forecasting process
for predicting steel prices, at least as developed by MCI3 for hot rolled coil and rebar. The
methodology as outlined in the present study should be regarded as a starting point, since a
more elaborate methodology is quite likely to improve on the accuracy of some of the
forecasts that are presented. If however the deliberations that are set out in the pages that
follow at least trigger a wider discussion about international steel price forecasting – and
perhaps even the further evolution of steel price forecasting methodology - then the authors
will consider that further achievement to be an added bonus.
1
Source: MEPS.
2
Amongst the main providers of this data, we would list CRU, GFMS, MBR and MEPS.
3
The MCI team published their original econometric steel price forecasts in December 2006 on the company’s
weblog at http://steelonthenet.blogspot.com/2006/12/steel-price-forecast-2007-2008.html

1.3 Sources of information
All information used in preparation of this report was taken from publicly available sources.
The main sources included:
 Monthly f.o.b. export price statistics for hot rolled coil, obtained from the Iron &
Steel Statistics Bureau [ISSB] in the UK;
 Commodity price data from the International Monetary Fund [IMF];
 Historic energy cost data and price projections from the U.S. Energy Information
Administration [EIA];
 Commodity prices and price forecasts from the World Bank.
1.4 Abbreviations
Common abbreviations used within this report include the following.
$ United States dollar

$/b Dollars per barrel
Al Chemical symbol for aluminium
Btu British thermal unit
c.i.f. Cost, insurance, freight
CIS Commonwealth of Independent States
EIA U.S. Energy Information Administration
f.o.b. Free on board
HRC Hot rolled coil
IMF International Monetary Fund
ISSB Iron and Steel Statistics Bureau
kWh Kilowatt hour
MCI Metals Consulting International Limited
Ni Chemical symbol for nickel
NSW New South Wales
Pb Chemical symbol for lead
Sn Chemical symbol for tin
T or t metric tonne (1000 kg)
UK United Kingdom
US United States of America
Zn Chemical symbol for zinc
Other abbreviations are as defined in the text.

1.5 Product definitions and price levels
Readers are advised that the prices used in the present report are average world f.o.b. export
prices. This was a deliberate choice, because – with internationally traded hot rolled coil and
rebar markets typically involving monthly exports of 1 or 2 million tonnes or more – these
prices are considered to be representative4.
Whilst representative on the one hand, the worldwide prices used in the present report are
also however very much dominated by exports from countries such as Russia and Ukraine;
whose prices are often at the lower end of the pricing spectrum5.
Additionally, export prices [generally expressed in terms of an f.o.b. local port price] are
usually lower than market price transactions by a differential of around 10%-12%6.
Some readers may as a result wish to reference just the trends described in the present report,
rather than make use of the absolute price levels that are indicated in dollar per tonne terms.
4
In more shallow markets, the risk arises of price distortions arising through atypical trades.
5
In their April 2011 report [Flat Steel Products – One Year Forecast], GFMS reported a price differential
between US and CIS hot rolled coil prices of ~$220/tonne. Whilst such a cost difference is a little unusual,
pricing differentials of $100-$150/tonne are not uncommon.
6
As a generalization, market prices tend to exceed c.i.f. import prices - which in turn tend to exceed f.o.b.
export prices (for most finished steel products). This may be partly because of differences in application [with
traded goods geared more to the commodity end of the spectrum and locally-sold steel geared more to higher
quality steel] as well as because of differences in product mix [e.g. grade issues], but can amount to a difference
of ~10-13% (see Appendix 6). The matter suggests that caution be used whenever reference is made to ‘the steel
price’ – the basis of which should always be defined.

2. HISTORIC STEEL PRICES
2.1 Price levels and price volatility
Some historic prices for hot rolled steel coil and for reinforcing steel bar are set out in
Exhibit 2.1 below.
Exhibit 2.1: Historic steel prices – Hot rolled coil and reinforcing bar
Source: ISSB. Figures are average world f.o.b. export prices.
The chart shows several notable characteristics, which include:
 A very strong similarity between flat and long product prices (as defined by hot rolled
coil and reinforcing bar, respectively). At first sight this may not be especially
surprising, since both are essentially commodity steel products. However, readers will
note that flat products (such as HRC) are typically produced using steel from a basic
oxygen furnace, where iron ore is used as the main source of iron for blast furnace
production, with coal and coke as main energy sources; whilst long products (such as
rebar) are more generally produced using steel from an electric arc furnace, with
ferrous scrap as the main source of iron units. Given this difference in the production
process routes, the similarity in historic prices is perhaps more surprising.
 A cyclicality of steel prices. Ignoring the changes in the steel price in 2008 / 2009,
small peaks and troughs in world steel prices are evident every 3-4 years. In the charts
above, these movements are evident as small peaks in mid-2000, in mid-2003, in mid-
2006, in early 2007 and in mid-2010. A common economic explanation of this
phenomenon is based on high prices at any particular time point fuelling investment
in additional steelmaking capacity, which leads to some overcapacity, which in turn
fuels a downward correction in steel prices [because of more competition]; followed
by partial industry exit, a reduction in steel supply, and a consequent increase in steel
prices – a cycle which is then repeated.

The most prominent aspect of the prices shown in Exhibit 2.1 however is the marked price
oscillation that was evident over the period late 2008 to early 2009, which was brought on by
the recent financial crisis. This had its roots in the US subprime mortgage crisis, which began
around 2005-2006, with high default rates on so-called ‘subprime’ mortgages being fuelled
by excessive bank lending, declining lending standards and possibly inappropriate assurances
of some of the leading credit agencies. As the problems became more apparent during 2007
and 2008, so these exposed more pervasive weaknesses in the global financial banking
system and in the underlying financial regulatory framework especially. These weaknesses
slowly crystallised as enormous accounting losses reported by the major banks. Various
merger deal proposals and consolidation plans aimed at improvement of balance sheet
strength followed. September 2008 however witnessed the collapses of several large financial
institutions in the United States. These collapses rapidly evolved into the financial crisis that
has been evident throughout 2009 and 2010.
Steel prices hit their peak in June, July and August 2008 – with hot rolled steel coil prices in
some steel markets attaining close to ~$1100/tonne, only to be less than half this level within
months7. Since that time, price recovery has been on a slow and generally upward trend,
although prices today are only marginally above pre-crisis levels (Exhibit 2.1).
2.2 Historic data
For reference, Appendix 1 provides actual price levels for HRC and for rebar [average world
f.o.b. export prices] in $/tonne for the period 1996-2010. These figures are the prices used in
the econometric analysis described in the present report.
Additional historic price data for range of other commodities – as used for the econometric
analysis – is shown in Appendix 2.
7
Source: MEPS. According to MEPS, average world market prices for HRC hit ~$1099/t in July 2008, falling
to ~$513/tonne by July 2009. Rebar price movements were largely similar.

2. FUTURE STEEL PRICES
3.1 The MCI econometric model
Econometrics are defined as the application of mathematics and statistical methods to the

analysis of economic data8. Accordingly, MCI’s econometric model is based on
understanding the relationship between historic steel prices and price factors such as:
 Crude oil (as an indicator of commodity prices, generally)

 Natural gas (as an important power source for steel pants)
 Thermal coal (as an important fuel e.g. for steel power plants)
 Metallurgical coal (used in the blast furnace)
 Electricity prices (used to power electric arc furnaces)
 Iron ore (as a dominant source of iron units for BOF steelmaking)
 Scrap (as a dominant source of iron units for electric steelmaking)
through
(i) analysis of the historic economic data by regression analysis to establish

important determinants of steel prices9
(ii) use of independent forecasts of the key parameters to predict (via the
statistical relationships identified by regression analysis) future steel prices.
Regarding the methodology applied in the MCI econometric model, the forecasting team:
 made use of historic commodity prices over the period 1996-2010 as published by the
IMF and the EIA to determined these statistical relationships
 used future prices for crude oil, natural as, coal and electricity, as supplied in
independent forecasts published by the EIA
 used future prices for iron ore published by the World Bank
 with respect to ferrous steel scrap, determined likely future scrap prices10 by:
o correlating historic steel scrap prices over the period 1994-2010 with the
historic price levels of iron ore, world steel production levels11, and the prices
of aluminium, lead, nickel, tin and zinc [for graphic illustration of relationship
between different metallics prices, see Appendix 3]
8
See http://en.wikipedia.org/wiki/Econometrics
9
‘Correlating factors’ may be a preferable term to ‘determinants’.
10
This approach was necessary for steel scrap as (i) preliminary econometric modelling indicated that scrap
prices were an important determinant of historic steel price levels and (ii) because no independent medium-term
estimate of future steel scrap prices was readily available.
11
Some industry commentators consider that scrap prices today largely reflect the difference between demand
[as modelled, for example, by current world steel production levels] and supply [as might be characterised by
steel demand ~20 or more years ago and entry into the current scrap pool of steel consumed then as cars, white
goods etc that are being recycled today].

o determining future scrap prices on the basis of the predicted mathematical

correlations using generally available forecasts for metallics prices (e.g. as
published by the World Bank) and other assumptions12.
The MCI econometric model applied this approach to historic hot rolled steel coil prices and
reinforcing bar prices to determine projections for these prices across the medium term, for a
5 year period to end-2015.
3.2 Strong and weak correlations with historic data
The statistical correlations observed with the analytical approach described in Section 3.1
above were as follows.
 For both HRC and rebar, strong correlations were observed between the historic steel
price data and:
o Australian thermal coal prices

o Metallurgical coal [coking coal] prices
o Scrap prices.
 Inconclusive, weak (statistically insignificant) or inverse correlations were observed

for:
o Oil prices
o US thermal coal prices
o Natural gas prices
o Electricity prices
o Iron ore
The latter observations can to some extent be understood by recognising:
 In the case of US thermal coal prices, because of their relative flatness over the period
1996-2010. Exhibit 3.1 compares a historic steel price index [a hot rolled coil / rebar
price average] with the price indices for US thermal coal to illustrate this point;
Exhibit 3.1: Historic correlation between steel prices and US thermal coal prices
Steel prices versus US thermal coal prices
350
300
Index [Jan 1996 = 100]
250
200
150
100
50
0
12
MCI further assume that world steel production
1996 2001 will continue to grow
2006 at ~3.5% per annum. 2011
Average steel price Thermal coal price index [USA]

Source: MCI analysis. For original price data, see Appendix 2.

 In the case of natural gas prices, since these too showed little evident correlation with
steel prices over the period 1996-2010 (Exhibit 3.2);
Exhibit 3.2: Historic correlation between steel prices and natural gas price
Steel prices versus natural gas prices
500
450
Index [Jan 1996 = 100]
400
350
300
250
200
150
100
50
0
1996 2001 2006 2011
Average steel price Natural gas price

 In the case of electricity prices, because of a relative flatness here also – with
electricity price showing marked seasonal sensitivity but little overall correlation to
the international steel price (Exhibit 3.3);
Exhibit 3.3: Historic correlation between steel prices and US electricity price
Steel prices versus electricity price
350
300
Index [Jan 1996 = 100]
250
200
150
100
50
0
1996 2001 2006 2011
Average steel price Electricity price index

 In the case of iron ore, because of the pricing flatness also evident for this raw
material – a flatness arising from the traditional annual price-setting approach used in
iron ore pricing up until mid-2010 (Exhibit 3.4).
Exhibit 3.4: Historic correlation between steel prices and world iron ore prices
Steel prices versus iron ore price
1400
1200
Index [Jan 1996 = 100]
1000
800
600
400
200
0
1996 2001 2006 2011
Average steel price Iron ore price index
Some of the above conclusions may be the result of selecting US rather than world or other
regional commodity price data. Stronger statistical correlations were however nonetheless
evident with Australian thermal coal [steam coal]; with US metallurgical [or coking] coal;
and with international ferrous scrap prices – and these relationships are illustrated in Exhibits
3.5, 3.6 and 3.7.
Exhibit 3.5: Historic correlation between steel prices and Australian thermal coal prices
Steel prices versus Australian thermal coal prices
600
500
Index [Jan 1996 = 100]
400
300
200
100
0
1996 2001 2006 2011
Average steel price Thermal coal price index [Aust]


Exhibit 3.6: Historic correlation between steel prices and US metallurgical coal prices
Steel prices versus metallurgical (coking) coal price
400
350
Index [Jan 1996 = 100]
300
250
200
150
100
50
0
1996 2001 2006 2011
Average steel price Metallurgical coal price index
Exhibit 3.7: Historic correlation between steel prices and ferrous scrap prices
Steel prices versus ferrous scrap prices
450
400
Index [Jan 1996 = 100]
350
300
250
200 a.
150
b.
c.
100
50
0
1996 2001 2006 2011
Average steel price Ferrous scrap price index
Correlation does not of course prove causality. However, rising international steel prices are
frequently attributed to rising raw material costs. With energy and metallics representing
important elements of total steel cost13 the strength of the correlations shown in Exhibits 3.5
(Australian thermal coal), 3.6 (metallurgical coal) and 3.7 (ferrous scrap) is not therefore
perhaps altogether unsurprising.
13
See cost models for BOF or EAF liquid steel at http://www.steelonthenet.com/steel_cost_bof.html and at
http://www.steelonthenet.com/steel_cost_eaf.html.

3.3 Leading steel price indicators
Exhibits 3.5-3.7 are of further interest from the perspective of possible leading indicators of
future steel prices14. Thus, in addition to each of the prices charts for Australian thermal coal,
US metallurgical coal and ferrous scrap showing a fair good fit to the historic steel price data,
the charts are notable also for:
 Australian thermal coal prices (see Exhibit 3.5) providing an early indication of the
probable direction of future steel price movements. For example, around the time of
the summer 2008 peak in commodity prices, Australian thermal coal prices started
falling significantly between July and August 2008 at a time when steel prices were
still on the rise [see Appendix 1, Appendix 2]
 Ferrous scrap prices similarly appearing to provide another leading indicator of steel
price movements
o see for example the period July 2008 to November 2008, during which scrap
prices almost halved [Appendix 2]
o notice that the corresponding correction for steel prices [both hot rolled coil
and rebar] was not until two months later, over the period September 2008 to
January 2009 [see Appendix 1].
3.4 Steel price predictions to 2015
Just as historic data may be assessed to establish price dependencies in the past, so also the
econometric assessments obtained in this way may be used to determine future steel prices.
Such an approach benefits all the more if independent forecasts of key variables can be used.
For the purpose of the present report, independent forecasts of the key variables were
obtained:
 directly from sources such the EIA and from the World Bank
 indirectly by correlations of historic scrap prices with other metallics prices [see
Appendix 3], based on independent projections (also from the World Bank) of the
future prices of aluminium, lead, nickel, tin and zinc.
Forecasts of the main independent variables used to forecast future international steel prices
are indicated in Appendix 4.
14
The authors note that the steel prices used in this report, as well as the scrap and coal prices, all derive from
trade statistics, with all these figures being reported as f.o.b. prices. These prices therefore differ from electricity
prices (for example) which are current - where price reporting is not subject to delays in the recording of trade
export transactions. Because the steel prices as well as the scrap prices as well as thermal coal prices used in
this report all derive from the recorded international trade data, MCI do not consider that the leading indicator
discussion in the report above is the result of artificial construct, arising from the use of current prices for one
set of data against the use of (delayed f.o.b.) trade data for another set of data. Rather, we would expect data sets
such as steel prices and ferrous scrap prices or thermal coal prices to be comparably delayed; and the conclusion
concerning ferrous scrap prices / Australian thermal coal prices representing useful leading indicators of
international steel prices to therefore be valid.

Applying the regression analysis to the projected parameter values shown in Appendix 4
resulted in the steel price forecasts indicated in Exhibits 3.8 and 3.9.
Exhibit 3.8: F.o.b. hot rolled coil prices – projections of the econometric model
Source: MCI econometric forecast, April 2011. F.o.b. export prices are shown. For market prices and market
price projections, add ~13.5% to figures shown [See footnote 6 and appendix 6].
Exhibit 3.9: F.o.b. reinforcing bar prices – projections of the econometric model
Source: MCI econometric forecast, April 2011. F.o.b. export prices are shown. For market prices and market
price projections, add ~13.5% to figures shown [See footnote 6 and appendix 6].

With both hot rolled coil and reinforcing bar, it is evident from Exhibits 3.8 and 3.9 that:
 the fit of the predicted historic data to the actual historic data is close15
 the forward projection is for maintained relatively high future steel prices:
o with average prices remaining well above pre-crisis levels from now to 2015
o with prices staying relatively constant across 2011 to 2013 [Appendix 5]16
o with further price rises expected in 2014 and 2015, which will raise f.o.b.
HRC / rebar prices some $150 per tonne in the medium-term [see Appendix 5]
 but without return to a scenario involving f.o.b. steel prices at $1000-$1100/tonne
[prior to 2016].
The latter result derives especially from the moderation of thermal coal prices17 that is to be
expected over the medium term, which will offset some of the cost-increasing influences of
rising scrap costs and other rising energy prices (Appendix 4).
15
The average absolute error in predicting historic versus actual prices over the period 1996-2010 with the MCI
econometric model works out at ~11% for HRC or ~9% for rebar.
16
Ignoring short-term peaks and troughs (of just a few weeks).
17
Australian thermal coal prices can be expected to fall according to several expert sources, including the World
Bank at
http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/EXTGBLPROSPECTS/0,,
contentMDK:20675357~menuPK:627723~pagePK:2904583~piPK:2904598~theSitePK:612501,00.html and
AustCoal [see Section 4] at http://austcoalconsulting.com/downloads/1%20Australian%20Coal%20Export
%20Forecast%20to%202015.pdf. The price reduction is expected [notwithstanding rising demand] because of
increasing thermal coal supply in the coming years resulting from mine development and from infrastructure
investment - especially in the Pacific Basin [see http://www.coaltrade.org/wp-
content/uploads/2011/02/Watkins.pdf] although the EIA also cite falling steam coal market share against natural
gas [http://www.eia.doe.gov/steo/] as a further factor.

4. CONCLUSIONS
The purpose of this report was to present a simple econometric model for forecasting
international steel prices. Fairly good correlations were identified between historic hot rolled
coil and rebar prices on the one hand; and historic thermal coal [Australian], metallurgical
coal and scrap prices on the other.
Regression analysis based on econometric modelling of the historic data indicated that steel
prices were likely to rise in the medium term:
 with significant price rises of the order of ~$150/tonne to be expected for both hot
rolled coil and reinforcing bar over the period to end-2015;
 but without export f.o.b. steel prices attaining the $1000-$1100/tonne levels seen
during mid-2008 in the coming years.
Anticipated increases in metallics prices [ferrous scrap] as well as in energy costs will
underpin the majority of these price rises. These upward price pressures will however be
offset by thermal coal prices which can be expected to decline as new coal supply comes into
the marketplace.

APPENDICES

Appendix 1: Average world HRC and rebar prices 1996-2010, $/tonne
Year Month HRC Rebar Year Month HRC Rebar

1996 1 382 280 2001 1 222 207
2 375 282 2 219 199
3 359 266 3 215 196
4 336 274 4 208 210
5 331 258 5 207 206
6 343 271 6 211 217
7 332 295 7 197 248
8 318 285 8 201 204
9 327 270 9 205 206
10 321 286 10 199 204
11 319 283 11 194 201
12 322 266 12 204 199
1997 1 302 275 2002 1 182 198
2 299 266 2 182 194
3 278 264 3 196 194
4 310 265 4 181 195
5 316 279 5 205 200
6 317 261 6 214 213
7 309 276 7 232 213
8 313 266 8 244 217
9 289 280 9 256 223
10 326 285 10 264 227
11 333 292 11 265 230
12 294 273 12 271 222
1998 1 297 273 2003 1 284 232
2 294 264 2 288 247
3 291 257 3 293 262
4 287 260 4 297 271
5 286 249 5 298 278
6 278 250 6 291 273
7 270 241 7 286 273
8 264 244 8 278 267
9 270 240 9 283 271
10 252 235 10 298 280
11 247 217 11 299 279
12 234 212 12 305 283
1999 1 215 200 2004 1 319 301
2 210 204 2 335 322
3 210 198 3 348 370
4 210 195 4 389 419
5 208 200 5 415 445
6 208 201 6 433 436
7 215 207 7 466 416
8 217 210 8 480 412
9 221 212 9 491 429
10 233 217 10 510 439
11 236 211 11 527 438
12 243 204 12 534 424
2000 1 250 205 2005 1 530 417
2 250 201 2 541 413
3 260 208 3 557 416
4 260 213 4 553 417
5 257 207 5 551 412
6 261 215 6 510 393
7 267 210 7 454 373
8 265 208 8 423 379
9 259 204 9 424 394
10 249 207 10 416 407
11 239 199 11 419 404
12 229 197 12 410 398
Iron & Steel Industry - Capital Investment Costs Page 20 / 31

Appendix 1: Average world HRC and rebar prices 1996-2010, $/tonne (contd)

2006 1 405 393 2009 1 515 486
2 399 393 2 483 470
3 401 403 3 485 437
4 411 413 4 452 422
5 447 434 5 431 439
6 476 454 6 426 451
7 547 475 7 438 444
8 517 485 8 460 465
9 523 500 9 506 489
10 531 493 10 534 497
11 520 479 11 533 478
12 504 465 12 513 469
2007 1 494 466 2010 1 516 475
2 497 484 2 525 492
3 517 501 3 545 506
4 531 528 4 574 572
5 547 567 5 623 607
6 556 571 6 634 581
7 554 578 7 651 553
8 555 563 8 617 554
9 561 564 9 611 591
10 564 567 10 638 596
11 585 563 11 625 594
12 567 563 12 610 591
2008 1 592 604
2 607 655
3 648 722
4 712 789
5 777 860
6 844 980
7 930 1,092
8 967 1,135
9 949 1,089
10 872 774
11 728 529
12 594 492
Prices are average world export prices f.o.b. local port in $/metric tonne [source: ISSB].

Appendix 2: Historic prices of selected commodities, 1996-2010
Year Month Oil Nat gas US coal Aust coal Met coal Elect Iron ore Scrap
$/b $/1000m3 $/m Btu $/tonne $/ton c/kWh $/tonne $/tonne
1996 1 18.9 105.6 1.3 39.37 46.3 4.5 13.3 133
2 19.1 138.0 1.3 39.28 46.3 4.5 13.3 136
3 21.3 105.2 1.3 39.01 46.3 4.5 13.3 126
4 23.6 81.1 1.3 39.33 45.7 4.5 13.3 131
5 21.2 80.7 1.3 38.2 45.7 4.5 13.3 137
6 20.4 89.7 1.3 38.2 45.7 4.7 13.3 126
7 21.3 92.1 1.3 38.4 45.1 4.9 13.3 131
8 21.9 73.5 1.3 38.35 45.1 4.8 13.3 133
9 24.0 65.9 1.3 38.1 45.1 4.8 13.3 115
10 24.9 81.8 1.3 37.6 45.0 4.6 13.3 126
11 23.6 110.9 1.3 35.7 45.0 4.5 13.3 119
12 25.4 137.3 1.3 35.35 45.0 4.4 13.3 112
1997 1 25.2 118.1 1.3 35.23 46.6 4.4 13.3 119
2 22.2 76.8 1.3 34.6 46.6 4.4 13.3 119
3 21.0 68.1 1.3 34.5 46.6 4.4 13.3 111
4 19.7 72.4 1.3 35.4 45.6 4.3 13.3 120
5 20.8 79.8 1.3 35.73 45.6 4.4 13.3 120
6 19.2 79.3 1.3 34.5 45.6 4.6 13.3 112
7 19.6 78.3 1.3 35 44.7 4.8 13.3 129
8 19.9 87.9 1.3 36.93 44.7 4.8 13.3 122
9 19.8 102.6 1.3 37.15 44.7 4.7 13.3 108
10 21.3 110.2 1.3 37.15 45.0 4.6 13.3 124
11 20.1 105.6 1.3 33.6 45.0 4.5 13.3 128
12 18.3 83.8 1.3 31.4 45.0 4.4 13.3 107
1998 1 16.7 75.9 1.3 31.4 46.1 4.4 13.7 117
2 16.1 79.6 1.3 33.44 46.1 4.3 13.7 120
3 15.1 80.0 1.3 31.88 46.1 4.3 13.7 116
4 15.3 88.3 1.3 31.18 44.7 4.3 13.7 109
5 14.9 77.5 1.3 30.28 44.7 4.4 13.7 107
6 13.7 77.2 1.3 30 44.7 4.7 13.7 103
7 14.1 78.9 1.3 30 43.9 4.9 13.7 99
8 13.4 66.8 1.3 26.2 43.9 4.8 13.7 96
9 15.0 70.6 1.3 27.09 43.9 4.6 13.7 95
10 14.4 69.3 1.2 27.1 43.5 4.4 13.7 85
11 13.0 75.7 1.2 26.1 43.5 4.3 13.7 79
12 11.3 62.0 1.2 26.1 43.5 4.3 13.7 78
1999 1 12.3 66.4 1.2 26.1 44.9 4.3 12.2 78
2 12.0 64.0 1.3 26.1 44.9 4.3 12.2 78
3 14.4 63.9 1.2 26.1 44.9 4.2 12.2 78
4 17.2 76.0 1.2 26.1 42.0 4.2 12.2 73
5 17.8 81.3 1.2 26.1 42.0 4.3 12.2 76
6 17.7 83.1 1.2 26.1 42.0 4.5 12.2 76
7 19.9 82.8 1.2 26.1 40.3 4.8 12.2 78
8 21.2 100.3 1.2 26.1 40.3 4.9 12.2 78
9 23.5 93.5 1.2 26.1 40.3 4.6 12.2 79
10 22.9 96.8 1.2 25.6 40.2 4.5 12.2 82
11 25.1 84.0 1.2 25.1 40.2 4.3 12.2 80
12 26.0 84.7 1.2 25.1 40.2 4.2 12.2 82
2000 1 27.2 86.5 1.2 25.1 40.5 4.3 12.7 89
2 29.2 95.7 1.2 25.1 40.5 4.3 12.7 91
3 29.9 100.1 1.2 25.1 40.5 4.3 12.7 91
4 25.8 109.3 1.2 25.1 38.2 4.3 12.7 92
5 28.8 129.2 1.2 25.6 38.2 4.5 12.7 90
6 31.9 154.3 1.2 25.6 38.2 4.8 12.7 90
7 30.0 143.6 1.2 25.6 39.5 5.0 12.7 89
8 31.3 159.4 1.2 25.6 39.5 5.1 12.7 84
9 33.9 182.3 1.2 27.15 39.5 4.8 12.7 84
10 33.1 180.8 1.2 27.15 37.7 4.7 12.7 86
11 34.4 198.8 1.2 27.15 37.7 4.6 12.7 85
12 28.4 320.9 1.2 30.75 37.7 4.9 12.7 87

Appendix 2: Historic prices of selected commodities, 1996-2010 (contd)
2001 1 29.5 294.2 1.2 32.1 39.3 4.8 13.3 87
2 29.6 199.9 1.2 32.1 39.3 4.8 13.3 89
3 27.2 186.4 1.2 32.6 39.3 4.9 13.3 87
4 27.4 186.6 1.2 33.5 40.1 4.9 13.3 85
5 28.6 151.0 1.2 33.8 40.1 5.0 13.3 84
6 27.6 134.2 1.3 33.9 40.1 5.2 13.3 84
7 26.4 111.9 1.2 34 43.2 5.6 13.3 87
8 27.5 106.4 1.2 33.8 43.2 5.5 13.3 87
9 25.6 78.9 1.2 32.8 43.2 5.3 13.3 87
10 22.2 88.9 1.2 32.4 44.7 5.1 13.3 90
11 19.6 84.8 1.2 29.4 44.7 4.8 13.3 89
12 19.3 87.2 1.2 27.35 44.7 4.8 13.3 87
2002 1 19.7 81.3 1.3 29.1 46.8 4.7 13.0 106
2 20.7 83.2 1.3 29.85 46.8 4.8 13.0 107
3 24.4 109.1 1.3 29.55 46.8 4.7 13.0 112
4 26.2 123.4 1.3 28.84 44.2 4.7 13.0 105
5 27.0 126.2 1.3 28.63 44.2 4.8 13.0 110
6 25.5 116.1 1.3 26.65 44.2 5.0 13.0 115
7 26.9 107.6 1.3 24.9 45.3 5.3 13.0 131
8 28.4 111.1 1.3 24 45.3 5.2 13.0 109
9 29.7 127.9 1.3 24.45 45.3 5.0 13.0 140
10 28.9 148.8 1.3 26.25 45.7 4.9 13.0 104
11 26.6 146.2 1.3 26.25 45.7 4.7 13.0 109
12 29.4 170.9 1.2 26.25 45.7 4.7 13.0 112
2003 1 33.0 196.3 1.3 26.68 46.3 4.9 14.1 123
2 35.8 277.3 1.3 26.95 46.3 5.0 14.1 131
3 33.3 214.0 1.3 26.14 46.3 5.0 14.1 140
4 28.1 190.0 1.3 25.13 44.6 5.0 14.1 139
5 28.1 209.3 1.3 24.96 44.6 5.1 14.1 140
6 30.7 210.7 1.3 25.82 44.6 5.3 14.1 132
7 30.8 181.0 1.3 26.09 43.1 5.5 14.1 123
8 31.6 179.5 1.3 27.13 43.1 5.5 14.1 129
9 28.3 166.4 1.3 28.61 43.1 5.2 14.1 134
10 30.3 166.8 1.3 29.46 44.0 5.1 14.1 146
11 31.1 161.7 1.3 32.05 44.0 4.9 14.1 149
12 32.1 221.0 1.3 36.43 44.0 4.9 14.1 156
2004 1 34.2 221.4 1.3 40.45 54.1 5.0 16.7 174
2 34.7 193.6 1.3 44.73 54.1 5.0 16.7 195
3 36.7 194.3 1.3 52.43 54.1 5.0 16.7 215
4 36.7 205.8 1.3 57.05 65.3 5.1 16.7 212
5 40.3 228.1 1.4 60.47 65.3 5.2 16.7 198
6 38.0 225.6 1.4 63.8 65.3 5.5 16.7 187
7 40.8 213.7 1.4 65.76 67.3 5.6 16.7 185
8 44.9 194.7 1.4 63.48 67.3 5.7 16.7 213
9 45.9 186.0 1.4 59.33 67.3 5.4 16.7 220
10 53.3 229.6 1.4 60.67 68.4 5.3 16.7 226
11 48.5 222.7 1.4 56.6 68.4 5.1 16.7 244
12 43.2 237.0 1.4 55.98 68.4 5.1 16.7 239
2005 1 46.8 221.5 1.5 56.83 73.7 5.1 28.7 230
2 48.0 221.0 1.5 53.46 73.7 5.1 28.7 235
3 54.2 239.4 1.5 54.56 73.7 5.1 28.7 233
4 53.0 258.3 1.5 54.91 81.3 5.2 28.7 229
5 49.8 233.1 1.6 54.98 81.3 5.3 28.7 213
6 56.4 258.6 1.5 54.64 81.3 5.7 28.7 200
7 58.7 275.2 1.5 54.54 85.9 6.0 28.7 188
8 65.0 342.9 1.6 52.63 85.9 6.0 28.7 194
9 65.5 447.0 1.6 48.48 85.9 6.0 28.7 219
10 62.4 490.8 1.6 45.49 86.0 5.9 28.7 216
11 58.3 370.8 1.6 40.78 86.0 5.7 28.7 210
12 59.4 469.8 1.6 40.96 86.0 5.7 28.7 204

Appendix 2: Historic prices of selected commodities, 1996-2010 (contd)
2006 1 65.5 312.7 1.7 46.27 91.9 5.8 34.2 214
2 61.6 270.9 1.7 51.11 91.9 6.0 34.2 217
3 62.9 247.7 1.7 53.3 91.9 5.9 34.2 236
4 69.5 258.1 1.7 56.65 90.1 5.9 34.2 228
5 70.9 224.9 1.7 56.36 90.1 6.0 34.2 247
6 70.9 223.3 1.7 56.12 90.1 6.4 34.2 252
7 74.4 222.2 1.7 56.52 90.7 6.6 34.2 251
8 73.0 256.8 1.7 54.58 90.7 6.7 34.2 260
9 63.8 176.3 1.7 50.46 90.7 6.4 34.2 273
10 58.9 210.4 1.7 47.2 90.7 6.2 34.2 265
11 59.1 266.8 1.7 49.29 90.7 6.0 34.2 245
12 62.0 242.3 1.7 53.3 90.7 6.0 34.2 267
2007 1 54.2 235.1 1.7 54.95 91.8 6.1 37.4 275
2 59.3 288.2 1.8 56.68 91.8 6.2 37.4 283
3 60.6 256.0 1.8 59.34 91.8 6.2 37.4 307
4 63.9 273.6 1.8 60.13 86.5 6.2 37.4 331
5 63.5 275.1 1.8 60 86.5 6.3 37.4 320
6 67.5 264.5 1.8 66 86.5 6.6 37.4 305
7 74.1 224.0 1.8 72.12 88.0 6.7 37.4 303
8 72.4 223.9 1.8 74.3 88.0 6.8 37.4 301
9 79.9 218.5 1.8 73.33 88.0 6.5 37.4 316
10 85.9 242.5 1.8 80.15 90.2 6.5 37.4 332
11 94.8 255.8 1.8 90.64 90.2 6.3 37.4 316
12 91.4 256.6 1.8 97.5 90.2 6.3 37.4 320
2008 1 93.0 287.4 1.9 98.3 98.9 6.2 62.1 348
2 95.4 307.6 1.9 141.43 98.9 6.2 62.1 381
3 105.5 338.8 1.9 126.7 98.9 6.3 62.1 400
4 112.6 366.5 2.0 131.79 129.9 6.5 62.1 448
5 125.4 405.6 2.1 142.71 129.9 6.6 62.1 490
6 133.9 456.6 2.1 171.16 129.9 7.2 62.1 538
7 133.4 399.2 2.1 192.86 149.3 7.6 62.1 558
8 116.6 297.1 2.2 169.71 149.3 7.4 62.1 518
9 103.9 274.4 2.2 160.71 149.3 7.2 62.1 473
10 76.6 242.5 2.2 115.71 156.7 7.0 62.1 384
11 57.3 241.1 2.2 98.84 156.7 6.9 62.1 239
12 41.4 210.1 2.2 84.27 156.7 6.7 70.0 243
2009 1 41.7 188.4 2.2 85.71 133.9 6.9 72.5 258
2 39.2 161.5 2.3 80.76 133.9 6.9 75.6 273
3 48.0 142.5 2.3 65.36 133.9 6.8 64.1 260
4 49.8 125.8 2.2 68.1 115.3 6.7 59.8 219
5 59.1 137.9 2.2 69.11 115.3 6.8 62.7 232
6 69.6 136.7 2.2 76.48 115.3 7.1 71.7 248
7 64.1 122.0 2.2 79.07 111.6 7.1 84.0 265
8 71.1 113.0 2.2 77.68 111.6 7.1 97.7 281
9 69.4 107.5 2.2 72.47 111.6 6.9 80.7 305
10 75.8 144.0 2.2 76.15 112.9 6.7 86.8 301
11 78.0 132.4 2.1 84.43 112.9 6.4 99.3 284
12 74.5 192.5 2.1 89.04 112.9 6.5 105.3 289
2010 1 78.3 210.3 2.2 103.93 117.4 6.5 125.9 310
2 76.3 191.4 2.3 100.92 117.4 6.6 127.6 323
3 81.3 154.5 2.3 101.12 117.4 6.5 139.8 339
4 84.5 145.4 2.3 107.3 143.7 6.6 172.5 348
5 73.7 149.4 2.3 107.28 143.7 6.7 161.4 379
6 75.4 172.9 2.3 105.2 143.7 7.0 143.6 363
7 76.2 166.6 2.3 102.84 162.5 7.3 126.4 335
8 76.6 155.3 2.3 96.19 162.5 7.2 145.3 303
9 75.3 140.2 2.3 101.66 162.5 7.0 140.6 369
10 81.9 123.6 2.3 104.41 162.5 6.8 148.5 373
11 84.2 133.7 2.3 114.81 162.5 6.6 160.6 368
12 89.2 152.9 2.2 126.74 162.5 6.6 168.5 382

Appendix 3: Metallics prices, 1994-2010
Source: International Monetary fund. Steel scrap prices show an especially strong correlation
with aluminium, tin and zinc prices, but poor and statistically insignificant correlations with
lead and nickel prices.

Appendix 4: Price projections for selected commodities
Period Oil Gas Thermal Thermal Met coal Elect Iron Scrap
$/b $/1000m3 coal coal $/ton C/ ore $/tonne
USA Australia kWh $/tonne
$/m Btu $/tonne
Dec 2010 89 153 2.23 127 163 6.59 168.5 382
2011 102 148 2.23 121 145 6.70 170 427
2012 105 165 2.21 113 147 6.69 158 410
2013 109 173 2.24 104 151 6.76 152 405
2014 115 178 2.27 101 152 6.87 133 423
2015 119 183 2.31 97 154 7.01 114 442
Source: MCI calculations, based on sources described in the text.

Appendix 5: Price projections for hot rolled coil and rebar 2011-2015

$/tonne $/tonne $/tonne $/tonne
2011 1 657 674 2014 1 691 683
2 659 688 2 698 689
3 656 696 3 705 695
4 656 697 4 709 702
5 655 698 5 705 704
6 653 698 6 702 705
7 652 699 7 700 706
8 651 701 8 698 706
9 651 701 9 699 706
10 653 701 10 701 705
11 657 696 11 712 711
12 661 692 12 723 717
2012 1 663 687 2015 1 732 723
2 665 683 2 741 730
3 665 679 3 749 737
4 663 676 4 754 745
5 659 678 5 750 746
6 656 679 6 747 747
7 654 680 7 745 748
8 652 681 8 743 748
9 652 681 9 744 748
10 654 680 10 746 747
11 659 676 11 748 747
12 664 673 12 751 746
2013 1 668 670 2016 1 753 745
2 670 668
3 672 666
4 671 664
5 668 665
6 664 666
7 662 667
8 661 668
9 661 668
10 663 667
11 673 672
12 683 677
Source: MCI econometric model. Projections are of f.o.b. export prices.

Appendix 6: F.o.b prices versus market prices – the year 2010 differential
$/tonne Hot rolled coil Rebar

ISSB MEPS Percent ISSB MEPS Percent
Basis Fo.b. Market F.o.b. Market
Month
1 516 607 85% 475 552 86%
2 525 631 83% 492 567 87%
3 545 657 83% 506 579 87%
4 574 736 78% 572 675 85%
5 623 754 83% 607 681 89%
6 634 713 89% 581 632 92%
7 651 691 94% 553 588 94%
8 617 700 88% 554 612 90%
9 611 694 88% 591 639 92%
10 638 688 93% 596 649 92%
11 625 677 92% 594 651 91%
12 610 663 92% 591 653 91%
Average 87.3% 89.7%
Adjustment factor - from f.o.b. to market prices: +13.5%
Average world monthly prices for 2010 hot rolled coil and for rebar sales are compared using f.o.b. export
prices [source: ISSB] and market prices [source: MEPS]. The f.o.b. prices appear to show a significant discount
of ~10-13%. For current steel prices, visit http://www.steelonthenet.com/price_info.html
[END OF REPORT]

ABOUT MCI
Metals Consulting International Limited (MCI) is a UK-based firm of

management consultants, specialising in the provision of independent
advisory consulting services relating to the European metals industries.
The advisory or support services include:
 MCI’s core services: Assistance with due-diligence, privatisation,

restructuring, modernisation, strategy formulation, business
planning, performance turnaround and profit improvement.
 MCI additional services: Assistance with partner search,

acquisition appraisal, forecasting, market studies, staff training.
During the course of the last 20 years MCI’s consulting professionals have
worked for a wide range of clients including national Governments,
Government bodies, the European Commission, the World Bank, the
EBRD, private sector banks, actual and potential metals company buyers
and sellers, and metals companies themselves.
This work has centred on steel and metals businesses across Europe [East
and West]. MCI’s Consultants also have significant industry experience
from assignments in North & South America, Africa and Asia-Pacific.
To request copies of client testimonials, for further information and

assistance, or for an initial no-obligation discussion please contact:
Andrzej M Kotas, Managing Director

Metals Consulting International Limited
22 Nesta Road
Woodford Green
Essex IG8 9RG
United Kingdom
 +44 (0) 208-504-2805 

 +44 (0) 775-149-0885 
amkotas
Email: MCI@steelonthenet.com
Web: http://www.steelonthenet.com

MCI Steel Price Projections Report

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WORLD STEEL PRICE

ECONOMETRIC MODELLING REPORT

Metals Consulting International Limited

2. HISTORIC STEEL PRICES 6

3. FUTURE STEEL PRICES 8

Econometric modelling report – steel prices – April 2011 Page 1

For further info, visit:

Econometric modelling report – steel prices – April 2011 Page 2

Econometric modelling report – steel prices – April 2011 Page 3

Exhibit 1.1: Historic prices of hot rolled coil and rebar

Source: http://www.steelonthenet.com. Figures are average world f.o.b. export prices.

1.2 Objective of this report

Econometric modelling report – steel prices – April 2011 Page 4

1.3 Sources of information

Common abbreviations used within this report include the following.

$ United States dollar

Other abbreviations are as defined in the text.

Econometric modelling report – steel prices – April 2011 Page 5

1.5 Product definitions and price levels

Econometric modelling report – steel prices – April 2011 Page 6

2. HISTORIC STEEL PRICES

2.1 Price levels and price volatility

Source: ISSB. Figures are average world f.o.b. export prices.

The chart shows several notable characteristics, which include:

Econometric modelling report – steel prices – April 2011 Page 7

2.2 Historic data

Econometric modelling report – steel prices – April 2011 Page 8

2. FUTURE STEEL PRICES

3.1 The MCI econometric model

Econometrics are defined as the application of mathematics and statistical methods to the

 Crude oil (as an indicator of commodity prices, generally)

(i) analysis of the historic economic data by regression analysis to establish

Econometric modelling report – steel prices – April 2011 Page 9

o determining future scrap prices on the basis of the predicted mathematical

3.2 Strong and weak correlations with historic data

o Australian thermal coal prices

 Inconclusive, weak (statistically insignificant) or inverse correlations were observed

The latter observations can to some extent be understood by recognising:

Average steel price Thermal coal price index [USA]

Source: MCI analysis. For original price data, see Appendix 2.

Average steel price Natural gas price

Average steel price Electricity price index

Econometric modelling report – steel prices – April 2011 Page 11

Source: MCI analysis. For original price data, see Appendix 2.

Average steel price Iron ore price index

Source: MCI analysis. For original price data, see Appendix 2.

Average steel price Thermal coal price index [Aust]

Source: MCI analysis. For original price data, see Appendix 2.

Econometric modelling report – steel prices – April 2011 Page 13

Average steel price Metallurgical coal price index

Source: MCI analysis. For original price data, see Appendix 2.

Average steel price Ferrous scrap price index

Source: MCI analysis. For original price data, see Appendix 2.

Econometric modelling report – steel prices – April 2011 Page 14

3.3 Leading steel price indicators

3.4 Steel price predictions to 2015

Econometric modelling report – steel prices – April 2011 Page 15

Econometric modelling report – steel prices – April 2011 Page 16

Econometric modelling report – steel prices – April 2011 Page 17

Econometric modelling report – steel prices – April 2011 Page 18

Econometric modelling report – steel prices – April 2011 Page 19

Appendix 1: Average world HRC and rebar prices 1996-2010, $/tonne