Cost Insights
by PowerAdvocate

Intelligence for energy companies seeking a data-driven approach to cost management

One Year Later: Our Steel Prediction Comes True

June 1, 2016 at 10:24 PM / by PowerAdvocate

Over the past two months, a number of commodity prices have begun to increase, but none is more important to energy firms than the recent gains in steel. Because steel is such a significant cost driver for everything from piping to tanks, even small price changes can significantly impact energy firms' cost structures.

So what do these price increases really mean? To answer that question, we turn back to 2015 when prices first started to fall...

A Prediction in 2015

PowerAdvocate first saw indications of a price increase early last year; and in fact, we ran a series of webinars outlining the risk of steel price increases due to impending trade cases.

Figure 1 shows one of the slides from those presentations, specifically showing our prediction that steel prices would increase 65% by May 2016.

To view that webinar, which gives the full story behind the price increase, click here.

Figure 1: Slide from 2015 PowerAdvocate Steel Forecast Presentation

Steel Forecast 2015

The Prediction Comes True

We're excited to share that our predictions have come true, both in timing and magnitude of the steel price increase. As trade cases continued to pile up and progress closer and closer to actual tariffs, prices have recently turned upwards.

In fact, the price increase trend nearly exactly mirrors what we had predicted a year before. In the figure below, we show actual steel prices through today: notice the similarity in both the magnitude of the 66% price uptick and the timing of the upturn.

Figure 2: Hot-rolled coil steel prices today

Steel Forecast Comes True

Many of our customers ran with our predictions and were able to lock in prices on steel-exposed purchases before the recent increase -- in fact, we've recently received word that a number of those firms realized savings in the millions!

So what's next? Will prices keep rising or fall back down?

On the one hand, there have been so many trade cases filed that the Department of Commerce has had to delay many of the determinations as they are flooded with information. As further determinations are made, the market will likely continue to react with increased prices.

On the other hand, market fundamentals remain the same: global demand remains weak and is expected to decline in 2016. And at the same time as hot-rolled coil has soared in the United States, prices have actually fallen in China, highlighting the uncertainty in the market.

Interested in learning more? Click here to speak with one of our market experts about steel.

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