MCI Steel Price Projections Report

WORLD STEEL PRICE

PROJECTIONS

ECONOMETRIC MODELLING REPORTApril 2011

Metals Consulting International Limitedhttp://www.steelonthenet.com

http://www.steelonthenet.com/

Metals Consulting International Limited Research Report

CONTENTS PageCONTENTS ……………………………………………………………………........

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 volatility……………………………………….....

6

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

5. APPENDICES ……………………………………………………………….

17

Appendix 1: Average world HRC and rebar prices 1996-2010 ……………...

18

Appendix 2: Historic prices of selected commodities, 1996-2010 …………..

20

Appendix 3: Metallics prices, 1994-2010 ……………………………………

23

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 2011-2015……...

25

Appendix 6: F.o.b prices versus market prices – the year 2010 differential …

26

For further info, visit:http://www.steelonthenet.com

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


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 barrelAl Chemical symbol for aluminiumBtu British thermal unitc.i.f. Cost, insurance, freightCIS Commonwealth of Independent StatesEIA U.S. Energy Information Administrationf.o.b. Free on boardHRC Hot rolled coilIMF International Monetary FundISSB Iron and Steel Statistics BureaukWh Kilowatt hourMCI Metals Consulting International LimitedNi Chemical symbol for nickelNSW New South WalesPb Chemical symbol for leadSn Chemical symbol for tinT or t metric tonne (1000 kg)UK United KingdomUS United States of AmericaZn 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]

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.

8 See http://en.wikipedia.org/wiki/Econometrics9 ‘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]. 12 MCI further assume that world steel production will continue to grow at ~3.5% per annum.


http://en.wikipedia.org/wiki/Econometrics

Steel prices versus US thermal coal prices

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Average steel price Thermal coal price index [USA]


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 priceso Metallurgical coal [coking coal] priceso Scrap prices.

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

o Oil priceso US thermal coal prices o Natural gas priceso Electricity priceso 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

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


Steel prices versus natural gas prices

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Average steel price Natural gas price

Steel prices versus electricity price

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1996 2001 2006 2011

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Average steel price Electricity price index


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


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 iron ore price

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Average steel price Iron ore price index

Steel prices versus Australian thermal coal prices

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Average steel price Thermal coal price index [Aust]


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


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 metallurgical (coking) coal price

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Average steel price Metallurgical coal price index

Steel prices versus ferrous scrap prices

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Average steel price Ferrous scrap price index


Exhibit 3.6: Historic correlation between steel prices and US metallurgical coal prices


Exhibit 3.7: Historic correlation between steel prices and ferrous scrap prices

a.b.c.


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.


http://www.steelonthenet.com/steel_cost_eaf.html

http://www.steelonthenet.com/steel_cost_bof.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.


http://www.eia.doe.gov/steo/

http://www.coaltrade.org/wp-content/uploads/2011/02/Watkins.pdf

http://austcoalconsulting.com/downloads/1%20Australian%20Coal%20Export%20Forecast%20to%202015.pdf

http://austcoalconsulting.com/downloads/1%20Australian%20Coal%20Export%20Forecast%20to%202015.pdf

http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/EXTGBLPROSPECTS/0,,contentMDK:20675357~menuPK:627723~pagePK:2904583~piPK:2904598~theSitePK:612501,00.html

http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/EXTGBLPROSPECTS/0,,contentMDK:20675357~menuPK:627723~pagePK:2904583~piPK:2904598~theSitePK:612501,00.html


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 1993 359 266 3 215 1964 336 274 4 208 2105 331 258 5 207 2066 343 271 6 211 2177 332 295 7 197 2488 318 285 8 201 2049 327 270 9 205 20610 321 286 10 199 20411 319 283 11 194 20112 322 266 12 204 199

1997 1 302 275 2002 1 182 1982 299 266 2 182 1943 278 264 3 196 1944 310 265 4 181 1955 316 279 5 205 2006 317 261 6 214 2137 309 276 7 232 2138 313 266 8 244 2179 289 280 9 256 22310 326 285 10 264 22711 333 292 11 265 23012 294 273 12 271 222

1998 1 297 273 2003 1 284 2322 294 264 2 288 2473 291 257 3 293 2624 287 260 4 297 2715 286 249 5 298 2786 278 250 6 291 2737 270 241 7 286 2738 264 244 8 278 2679 270 240 9 283 27110 252 235 10 298 28011 247 217 11 299 27912 234 212 12 305 283

1999 1 215 200 2004 1 319 3012 210 204 2 335 3223 210 198 3 348 3704 210 195 4 389 4195 208 200 5 415 4456 208 201 6 433 4367 215 207 7 466 4168 217 210 8 480 4129 221 212 9 491 42910 233 217 10 510 43911 236 211 11 527 43812 243 204 12 534 424

2000 1 250 205 2005 1 530 4172 250 201 2 541 4133 260 208 3 557 4164 260 213 4 553 4175 257 207 5 551 4126 261 215 6 510 3937 267 210 7 454 3738 265 208 8 423 3799 259 204 9 424 39410 249 207 10 416 40711 239 199 11 419 40412 229 197 12 410 398

Iron & Steel Industry - Capital Investment Costs Page 19 / 29


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

Year Month HRC Rebar Year Month HRC Rebar 2006 1 405 393 2009 1 515 486

2 399 393 2 483 4703 401 403 3 485 4374 411 413 4 452 4225 447 434 5 431 4396 476 454 6 426 4517 547 475 7 438 4448 517 485 8 460 4659 523 500 9 506 48910 531 493 10 534 49711 520 479 11 533 47812 504 465 12 513 469

2007 1 494 466 2010 1 516 4752 497 484 2 525 4923 517 501 3 545 5064 531 528 4 574 5725 547 567 5 623 6076 556 571 6 634 5817 554 578 7 651 5538 555 563 8 617 5549 561 564 9 611 59110 564 567 10 638 59611 585 563 11 625 59412 567 563 12 610 591

2008 1 592 6042 607 6553 648 7224 712 7895 777 8606 844 9807 930 1,0928 967 1,1359 949 1,08910 872 77411 728 52912 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 1332 19.1 138.0 1.3 39.28 46.3 4.5 13.3 1363 21.3 105.2 1.3 39.01 46.3 4.5 13.3 1264 23.6 81.1 1.3 39.33 45.7 4.5 13.3 1315 21.2 80.7 1.3 38.2 45.7 4.5 13.3 1376 20.4 89.7 1.3 38.2 45.7 4.7 13.3 1267 21.3 92.1 1.3 38.4 45.1 4.9 13.3 1318 21.9 73.5 1.3 38.35 45.1 4.8 13.3 1339 24.0 65.9 1.3 38.1 45.1 4.8 13.3 11510 24.9 81.8 1.3 37.6 45.0 4.6 13.3 12611 23.6 110.9 1.3 35.7 45.0 4.5 13.3 11912 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 1192 22.2 76.8 1.3 34.6 46.6 4.4 13.3 1193 21.0 68.1 1.3 34.5 46.6 4.4 13.3 1114 19.7 72.4 1.3 35.4 45.6 4.3 13.3 1205 20.8 79.8 1.3 35.73 45.6 4.4 13.3 1206 19.2 79.3 1.3 34.5 45.6 4.6 13.3 1127 19.6 78.3 1.3 35 44.7 4.8 13.3 1298 19.9 87.9 1.3 36.93 44.7 4.8 13.3 1229 19.8 102.6 1.3 37.15 44.7 4.7 13.3 10810 21.3 110.2 1.3 37.15 45.0 4.6 13.3 12411 20.1 105.6 1.3 33.6 45.0 4.5 13.3 12812 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 1172 16.1 79.6 1.3 33.44 46.1 4.3 13.7 1203 15.1 80.0 1.3 31.88 46.1 4.3 13.7 1164 15.3 88.3 1.3 31.18 44.7 4.3 13.7 1095 14.9 77.5 1.3 30.28 44.7 4.4 13.7 1076 13.7 77.2 1.3 30 44.7 4.7 13.7 1037 14.1 78.9 1.3 30 43.9 4.9 13.7 998 13.4 66.8 1.3 26.2 43.9 4.8 13.7 969 15.0 70.6 1.3 27.09 43.9 4.6 13.7 9510 14.4 69.3 1.2 27.1 43.5 4.4 13.7 8511 13.0 75.7 1.2 26.1 43.5 4.3 13.7 7912 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 12.2 782 12.0 64.0 1.3 26.1 44.9 4.3 12.2 783 14.4 63.9 1.2 26.1 44.9 4.2 12.2 784 17.2 76.0 1.2 26.1 42.0 4.2 12.2 735 17.8 81.3 1.2 26.1 42.0 4.3 12.2 766 17.7 83.1 1.2 26.1 42.0 4.5 12.2 767 19.9 82.8 1.2 26.1 40.3 4.8 12.2 788 21.2 100.3 1.2 26.1 40.3 4.9 12.2 789 23.5 93.5 1.2 26.1 40.3 4.6 12.2 7910 22.9 96.8 1.2 25.6 40.2 4.5 12.2 8211 25.1 84.0 1.2 25.1 40.2 4.3 12.2 8012 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 12.7 892 29.2 95.7 1.2 25.1 40.5 4.3 12.7 913 29.9 100.1 1.2 25.1 40.5 4.3 12.7 914 25.8 109.3 1.2 25.1 38.2 4.3 12.7 925 28.8 129.2 1.2 25.6 38.2 4.5 12.7 906 31.9 154.3 1.2 25.6 38.2 4.8 12.7 907 30.0 143.6 1.2 25.6 39.5 5.0 12.7 898 31.3 159.4 1.2 25.6 39.5 5.1 12.7 849 33.9 182.3 1.2 27.15 39.5 4.8 12.7 8410 33.1 180.8 1.2 27.15 37.7 4.7 12.7 8611 34.4 198.8 1.2 27.15 37.7 4.6 12.7 8512 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 13.3 872 29.6 199.9 1.2 32.1 39.3 4.8 13.3 893 27.2 186.4 1.2 32.6 39.3 4.9 13.3 874 27.4 186.6 1.2 33.5 40.1 4.9 13.3 855 28.6 151.0 1.2 33.8 40.1 5.0 13.3 846 27.6 134.2 1.3 33.9 40.1 5.2 13.3 847 26.4 111.9 1.2 34 43.2 5.6 13.3 878 27.5 106.4 1.2 33.8 43.2 5.5 13.3 879 25.6 78.9 1.2 32.8 43.2 5.3 13.3 8710 22.2 88.9 1.2 32.4 44.7 5.1 13.3 9011 19.6 84.8 1.2 29.4 44.7 4.8 13.3 8912 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 1062 20.7 83.2 1.3 29.85 46.8 4.8 13.0 1073 24.4 109.1 1.3 29.55 46.8 4.7 13.0 1124 26.2 123.4 1.3 28.84 44.2 4.7 13.0 1055 27.0 126.2 1.3 28.63 44.2 4.8 13.0 1106 25.5 116.1 1.3 26.65 44.2 5.0 13.0 1157 26.9 107.6 1.3 24.9 45.3 5.3 13.0 1318 28.4 111.1 1.3 24 45.3 5.2 13.0 1099 29.7 127.9 1.3 24.45 45.3 5.0 13.0 14010 28.9 148.8 1.3 26.25 45.7 4.9 13.0 10411 26.6 146.2 1.3 26.25 45.7 4.7 13.0 10912 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 1232 35.8 277.3 1.3 26.95 46.3 5.0 14.1 1313 33.3 214.0 1.3 26.14 46.3 5.0 14.1 1404 28.1 190.0 1.3 25.13 44.6 5.0 14.1 1395 28.1 209.3 1.3 24.96 44.6 5.1 14.1 1406 30.7 210.7 1.3 25.82 44.6 5.3 14.1 1327 30.8 181.0 1.3 26.09 43.1 5.5 14.1 1238 31.6 179.5 1.3 27.13 43.1 5.5 14.1 1299 28.3 166.4 1.3 28.61 43.1 5.2 14.1 13410 30.3 166.8 1.3 29.46 44.0 5.1 14.1 14611 31.1 161.7 1.3 32.05 44.0 4.9 14.1 14912 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 1742 34.7 193.6 1.3 44.73 54.1 5.0 16.7 1953 36.7 194.3 1.3 52.43 54.1 5.0 16.7 2154 36.7 205.8 1.3 57.05 65.3 5.1 16.7 2125 40.3 228.1 1.4 60.47 65.3 5.2 16.7 1986 38.0 225.6 1.4 63.8 65.3 5.5 16.7 1877 40.8 213.7 1.4 65.76 67.3 5.6 16.7 1858 44.9 194.7 1.4 63.48 67.3 5.7 16.7 2139 45.9 186.0 1.4 59.33 67.3 5.4 16.7 22010 53.3 229.6 1.4 60.67 68.4 5.3 16.7 22611 48.5 222.7 1.4 56.6 68.4 5.1 16.7 24412 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 2302 48.0 221.0 1.5 53.46 73.7 5.1 28.7 2353 54.2 239.4 1.5 54.56 73.7 5.1 28.7 2334 53.0 258.3 1.5 54.91 81.3 5.2 28.7 2295 49.8 233.1 1.6 54.98 81.3 5.3 28.7 2136 56.4 258.6 1.5 54.64 81.3 5.7 28.7 2007 58.7 275.2 1.5 54.54 85.9 6.0 28.7 1888 65.0 342.9 1.6 52.63 85.9 6.0 28.7 1949 65.5 447.0 1.6 48.48 85.9 6.0 28.7 21910 62.4 490.8 1.6 45.49 86.0 5.9 28.7 21611 58.3 370.8 1.6 40.78 86.0 5.7 28.7 21012 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 2142 61.6 270.9 1.7 51.11 91.9 6.0 34.2 2173 62.9 247.7 1.7 53.3 91.9 5.9 34.2 2364 69.5 258.1 1.7 56.65 90.1 5.9 34.2 2285 70.9 224.9 1.7 56.36 90.1 6.0 34.2 2476 70.9 223.3 1.7 56.12 90.1 6.4 34.2 2527 74.4 222.2 1.7 56.52 90.7 6.6 34.2 2518 73.0 256.8 1.7 54.58 90.7 6.7 34.2 2609 63.8 176.3 1.7 50.46 90.7 6.4 34.2 27310 58.9 210.4 1.7 47.2 90.7 6.2 34.2 26511 59.1 266.8 1.7 49.29 90.7 6.0 34.2 24512 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 2752 59.3 288.2 1.8 56.68 91.8 6.2 37.4 2833 60.6 256.0 1.8 59.34 91.8 6.2 37.4 3074 63.9 273.6 1.8 60.13 86.5 6.2 37.4 3315 63.5 275.1 1.8 60 86.5 6.3 37.4 3206 67.5 264.5 1.8 66 86.5 6.6 37.4 3057 74.1 224.0 1.8 72.12 88.0 6.7 37.4 3038 72.4 223.9 1.8 74.3 88.0 6.8 37.4 3019 79.9 218.5 1.8 73.33 88.0 6.5 37.4 31610 85.9 242.5 1.8 80.15 90.2 6.5 37.4 33211 94.8 255.8 1.8 90.64 90.2 6.3 37.4 31612 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 3482 95.4 307.6 1.9 141.43 98.9 6.2 62.1 3813 105.5 338.8 1.9 126.7 98.9 6.3 62.1 4004 112.6 366.5 2.0 131.79 129.9 6.5 62.1 4485 125.4 405.6 2.1 142.71 129.9 6.6 62.1 4906 133.9 456.6 2.1 171.16 129.9 7.2 62.1 5387 133.4 399.2 2.1 192.86 149.3 7.6 62.1 5588 116.6 297.1 2.2 169.71 149.3 7.4 62.1 5189 103.9 274.4 2.2 160.71 149.3 7.2 62.1 47310 76.6 242.5 2.2 115.71 156.7 7.0 62.1 38411 57.3 241.1 2.2 98.84 156.7 6.9 62.1 23912 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 2582 39.2 161.5 2.3 80.76 133.9 6.9 75.6 2733 48.0 142.5 2.3 65.36 133.9 6.8 64.1 2604 49.8 125.8 2.2 68.1 115.3 6.7 59.8 2195 59.1 137.9 2.2 69.11 115.3 6.8 62.7 2326 69.6 136.7 2.2 76.48 115.3 7.1 71.7 2487 64.1 122.0 2.2 79.07 111.6 7.1 84.0 2658 71.1 113.0 2.2 77.68 111.6 7.1 97.7 2819 69.4 107.5 2.2 72.47 111.6 6.9 80.7 30510 75.8 144.0 2.2 76.15 112.9 6.7 86.8 30111 78.0 132.4 2.1 84.43 112.9 6.4 99.3 28412 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 3102 76.3 191.4 2.3 100.92 117.4 6.6 127.6 3233 81.3 154.5 2.3 101.12 117.4 6.5 139.8 3394 84.5 145.4 2.3 107.3 143.7 6.6 172.5 3485 73.7 149.4 2.3 107.28 143.7 6.7 161.4 3796 75.4 172.9 2.3 105.2 143.7 7.0 143.6 3637 76.2 166.6 2.3 102.84 162.5 7.3 126.4 3358 76.6 155.3 2.3 96.19 162.5 7.2 145.3 3039 75.3 140.2 2.3 101.66 162.5 7.0 140.6 36910 81.9 123.6 2.3 104.41 162.5 6.8 148.5 37311 84.2 133.7 2.3 114.81 162.5 6.6 160.6 36812 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$/b

Gas$/1000m3

Thermal coalUSA

$/m Btu

Thermal coal

Australia$/tonne

Met coal$/ton

ElectC /

kWh

Iron ore

$/tonne

Scrap$/tonne

Dec 2010 89 153 2.23 127 163 6.59 168.5 3822011 102 148 2.23 121 145 6.70 170 4272012 105 165 2.21 113 147 6.69 158 4102013 109 173 2.24 104 151 6.76 152 4052014 115 178 2.27 101 152 6.87 133 4232015 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

Year Month HRC Rebar Year Month HRC Rebar$/tonne $/tonne $/tonne $/tonne

2011 1 657 674 2014 1 691 6832 659 688 2 698 6893 656 696 3 705 6954 656 697 4 709 7025 655 698 5 705 7046 653 698 6 702 7057 652 699 7 700 7068 651 701 8 698 7069 651 701 9 699 70610 653 701 10 701 70511 657 696 11 712 71112 661 692 12 723 717

2012 1 663 687 2015 1 732 7232 665 683 2 741 7303 665 679 3 749 7374 663 676 4 754 7455 659 678 5 750 7466 656 679 6 747 7477 654 680 7 745 7488 652 681 8 743 7489 652 681 9 744 74810 654 680 10 746 74711 659 676 11 748 74712 664 673 12 751 746

2013 1 668 670 2016 1 753 7452 670 6683 672 6664 671 6645 668 6656 664 6667 662 6678 661 6689 661 66810 663 66711 673 67212 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 RebarISSB MEPS Percent ISSB MEPS Percent

Basis Fo.b. Market F.o.b. Market

Month1 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]


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MCI Steel Price Projections Report

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