Trends in Price Structures and Risk · PDF file325 290 255 Price ($ Volume ... Huge iron ore...
23
Trends in Price Structures and Risk Management new tools to meet the needs of changing markets Topics Raw material price volatility Financial hedging Forward price curves W ld St l World Steel Exchange Scrap Presented by: Patrick A. McCormick Managing Partner WORLD STEEL DYNAMICS Managing Partner – WORLD STEEL DYNAMICS President – WORLD STEEL EXCHANGE MARKETING November 10, 2011 FOLIO NO. 23
Transcript of Trends in Price Structures and Risk · PDF file325 290 255 Price ($ Volume ... Huge iron ore...
Tren
ds in
Pric
e St
ruct
ures
and
Ris
k M
anag
emen
t ne
w to
ols
to m
eet t
he n
eeds
of c
hang
ing
mar
kets
Topi
csR
aw m
ater
ial
pric
e vo
latil
ity
Fi
nanc
ial
hedg
ing
Fo
rwar
d pr
ice
curv
es
Wld
Stl
Wor
ld S
teel
Ex
chan
ge
Scra
p
Pres
ente
d by
:
Patr
ick
A. M
cCor
mic
kM
anag
ing
Part
ner
WO
RLD
STEE
LD
YN
AM
ICS
Man
agin
g Pa
rtne
r –W
OR
LD S
TEEL
DY
NA
MIC
SPr
esid
ent –
WO
RLD
STEE
L EX
CH
AN
GE
MA
RK
ETI
NG
Nov
embe
r 10,
201
1
FOLIO NO. 23
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Man
y pl
ayer
s in
the
glob
al s
teel
indu
stry
now
reco
gniz
e th
at
man
agin
g th
e ris
ks a
ssoc
iate
d w
ith in
crea
sing
pric
e vo
latil
ityis
an
esse
ntia
l nee
d……
….ju
st li
ke s
leep
and
wat
er
200
250
HR
B W
orld
Exp
ort
Pric
e an
d #
1 H
eavy
Mel
t S
crap
(Mon
th-t
o-M
onth
Pric
e C
hang
e)
Ste
el B
uyer
/Sel
ler
Car
diac
Arr
est
50100
150
oss Ton
Ho
t-R
olle
d B
and
Pri
ce(b
lue
squa
res)
-100-5
00
Tonne / $ per Gro -250
-200
-150
$ per T
#1 H
eavy
Mel
t S
crap
(red
line)
-300
Jan-70Jan-71Jan-72Jan-73Jan-74Jan-75Jan-76Jan-77Jan-78Jan-79Jan-80Jan-81Jan-82Jan-83Jan-84Jan-85Jan-86Jan-87Jan-88Jan-89Jan-90Jan-91Jan-92Jan-93Jan-94Jan-95Jan-96Jan-97Jan-98Jan-99Jan-00Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11
Sou
rce:
Pric
eTra
ck, S
teel
Ben
chm
arke
rTM
and
AM
M
FOLIO NO. 22
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
MU
SASc
rap
Pric
eH
isto
ryU
SA S
crap
Pric
e H
isto
ryw
ww
.ste
elbe
nchm
arke
r.com
USA
, del
iver
ed to
stee
l pla
nt(A
MM
scra
p pr
ice
data
, Jan
. 200
0 -J
an. 2
007;
Stee
lBen
chm
arke
r dat
a be
gins
Feb
. 200
7)
800
900
Oct
ober
26,
2011
#1 B
ushe
ling
500
600
700
ss ton
Shre
dded
386
423
472
300
400
500
Dollars per gros 100
200
D
#1 H
eavy
Mel
ting
3
0
FOLIO NO. 21
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
“Ver
y hi
gh c
orre
latio
n (0
.999
) with
RM
DA
S p
ublis
hed
•E
asy
inte
rnet
acc
ess
with
a s
ecur
e co
mpu
teriz
ed ro
ll-up
pro
cess
US
A co
mpo
site
scr
ap p
rices
for #
1 H
M, S
hred
ded
& #
1 B
ushe
ling”
•A
ll qu
alifi
ed m
arke
t par
ticip
ants
can
bec
ome
a m
arke
t pric
e as
sess
men
t pr
ovid
er a
t ww
w.s
teel
benc
hmar
ker.c
om
•C
olle
ctin
gm
arke
tpric
eas
sess
men
tsfro
mm
ills
end
user
stra
ders
•C
olle
ctin
g m
arke
t pric
e as
sess
men
ts fr
om m
ills,
end
-use
rs, t
rade
rs,
dist
ribut
ors,
and
scr
appi
es
•W
SD
has
dee
p ex
perie
nce
in c
olle
ctin
g m
arke
t pric
es:
–W
SD
Pric
eTra
cker
ser
ies
initi
ated
in 1
981
–St
eelB
ench
mar
kerT
Mca
rrie
d on
in A
pril
2006
•M
ulti
regi
onal
pric
esfo
rHR
B,C
RC
,Pla
te,a
ndR
ebar
.
Free
Acc
ess
Mul
ti re
gion
al p
rices
for H
RB
, CR
C, P
late
, and
Reb
ar.
–U
SA
scr
ap p
rices
for #
1 H
M, s
hred
ded,
and
#1
bush
elin
g ad
ded
in
Febr
uary
200
74
FOLIO NO. 20
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
1800
Qua
rtely Crud
e Steel P
rodu
ction (Ann
ualized
)
Chi
na’s
3Q
11 s
teel
pro
duct
ion
was
45.
4%of
the
glob
al to
tal
1400
1,600
1,800
1,000
1,200
1,400
nes
Dev
elop
ing
Wor
ldex
-Chi
na4 5 %
600
800
million ton
Chi
na
% of
3 Q 1 1
200
400
Adv
ance
d Ec
onom
ies
1
0
FOLIO NO. 19
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
US
A #
1 bu
shel
ing
pric
e ch
ange
s ov
er th
e pa
st n
ine
quar
ters
ar
e tra
ckin
g w
ell w
ith g
loba
l scr
ap d
eman
d ch
ange
s
900
1,00
0
170
180
Bus
helin
g Sc
rap
Pric
e El
astic
ity A
naly
sis
600
700
800
140
150
160
$/GT)
ions MT)
Nin
e qu
arte
rs
300
400
500
110
120
130
Price ($
Volume (Mill
0100
200
8090100
6G
loba
l Scr
ap R
equi
rem
ent
Bus
helin
g Sc
rap
pric
e (A
MM
-C
hica
go)
FOLIO NO. 18
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Indi
a sp
ot ir
on o
re p
rices
als
o st
artin
g to
track
wel
l with
glo
bal i
ron
ore
dem
and
in 2
010
Spot
Iron
Ore
Pric
eEl
astic
ityA
naly
sis
160
180
200
430
465
500
Spot
Iron
Ore
Pric
e El
astic
ity A
naly
sis
120
140
360
395
/MT)
ions MT)
6080100
255
290
325
Price ($
Volume (Mill
Qua
rter
ly
02040
150
185
220
Iron
Ore
Pr
icin
g
7
015
0
Glo
bal I
.O. R
equi
rem
ent
Spot
Iron
ore
pric
e (F
OB
Indi
a)
FOLIO NO. 17
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
200
Dai
ly Ir
on O
re S
pot P
rice
vers
us 3
Mon
th F
orw
ard
Swap
Pric
e
Spo
t iro
n or
e pr
ices
plu
nge
in O
ctob
er 2
011
180
190
200
160
170
5% Fe Content)
Fine
s C
FR C
hina
130
140
150
USD Per Tonne (63.
110
120
U
SGX
3MF
dS
CFR
Chi
100
SGX
3MFo
rwar
d Sw
ap C
FR C
hina
Sour
ce:M
etal
Bulle
tinan
dSi
ngap
ore
Exch
ange
FOLIO NO. 16
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Chi
na’s
ann
ualiz
ed s
teel
pro
duct
ion
rate
dr
ops
79M
tonn
es in
Oct
ober
201
1C
hina
10
Day
Ann
ualiz
ed C
rude
Ste
el P
rodu
ctio
n Fi
gure
s
710
720
730
740
750
7
660
670
680
690
700
onnes
7 9 M D r
610
620
630
640
650
million to
r o p
560
570
580
590
600
550
FOLIO NO. 15
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Hug
e iro
n or
e pr
ice
drop
thre
aten
s st
eel s
crap
pric
esvi
a lo
wer
pig
iron
raw
mat
eria
l cos
tsPr
ime
Scra
p D
eliv
ered
USA
ver
sus
Wei
ghte
d Iro
n O
re a
nd C
okin
g C
oal
Pric
e In
dex
100
120
140
475
500
525
550
575
pg
g
Prim
e Sc
rap
(LH
S)
608000
350
375
400
425
450
IO C
&F
Chi
na x
1.6
+ C
okin
g C
oal F
OB
Au
stra
lia x
.6 (L
HS)
onne
USD p
2040
225
250
275
300
325
USD per metrict
per metric tonne
-40
-20
0
100
125
150
175
200
Prim
eSc
rap
less
Wei
ghte
dIro
n O
re a
nd C
okin
g C
oal P
rice
(RH
S)
-60
5075100
FOLIO NO. 14
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Whe
n sh
ould
you
con
side
r fin
anci
ally
hed
ging
pric
e ris
k
The
follo
win
g qu
otes
fram
e th
e he
dgin
g ra
tiona
le
from
a s
teel
indu
stry
pla
yer:
yp
y
“ I c
hoos
e to
fina
ncia
lly h
edge
whe
n th
e ris
k fro
m m
arke
t pr
ice
vola
tility
is a
larg
e pe
rcen
tage
of m
y pr
ofit
mar
gin!
“Ifth
eris
kfro
mm
arke
tpric
evo
latil
ityis
asm
allp
erce
ntag
eIf
the
risk
from
mar
ket p
rice
vola
tility
is a
sm
all p
erce
ntag
e of
my
prof
it m
argi
n I a
m w
illin
g to
take
the
risk!
11
FOLIO NO. 13
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Ste
el in
dust
ry fu
ture
s/sw
ap tr
adin
g vo
lum
es a
re g
row
ing
1,00
0,00
0,00
0Sh
angh
ai -
Reb
ar
10,0
00,0
00
100,
000,
000
LM
E -
Med
iterr
anea
n B
illet
(now
Glo
bal)
SGX
-Ir
on O
re
100,
000
1,00
0,00
0
Tonnes
(now
Glo
bal)
1,00
0
10,0
00
LM
E -
Far
Eas
t Bill
et(c
ontr
actd
isco
ntin
ued)
NY
ME
X -
Hot
-Rol
led
Ban
d
10100
12
1
FOLIO NO. 12
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Fina
ncia
l hed
ging
offe
rs s
teel
indu
stry
par
ticip
ants
a
uniq
ue v
alue
pro
posi
tion
Fo
rwar
d pr
ice
curv
e fro
m w
hich
to ju
dge
hedg
ing
oppo
rtuni
ties
Ti
min
g fle
xibi
lity
on fo
rwar
d pr
ice
com
mitm
ents
G
uara
ntee
d co
ntra
ct p
erfo
rman
ce
N
oN
orth
Am
eric
anex
chan
gecl
earin
gho
use
has
ever
defa
ulte
dN
o N
orth
Am
eric
an e
xcha
nge
clea
ring
hous
e ha
s ev
er d
efau
lted
13
FOLIO NO. 11
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Fina
ncia
l hed
ging
off-
sets
phy
sica
l ste
el c
ontra
ct p
rice
risks
Phy
sica
l Con
tract
Pric
e Va
riatio
n
latility
Phys
ical
Con
trac
tP
rice
vola
tility
flow
s th
rutim
e
Price vol
via
chan
ges
in th
e pr
ice
inde
x
Fina
ncia
l Con
tract
Hed
ge P
ayou
tFi
nanc
ialC
ontr
act
= Fi
xed
Pric
e
time
e Payout
Fina
ncia
l Con
trac
tH
edge
pay
out i
s th
e re
cipr
ocal
of t
he c
hang
es 14
time
Hedge
in th
e pr
ice
inde
x
FOLIO NO. 10
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
SG
X c
lear
ed ir
on o
re s
wap
forw
ard
curv
e w
eekl
y sn
apsh
ots
170
155
160
165
Selle
r opp
ortu
nity
145
150
155
$ per MT CNF China
135
140
Buy
erop
port
unity
120
125
130
Buy
er o
ppor
tuni
ty
120
10/3
/201
110
/10/
2011
10/1
7/20
1110
/24/
2011
10/3
1/20
11
FOLIO NO. 9
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
$750
$760
CM
E/N
YM
EX
hot
-rolle
d co
il fo
rwar
d cu
rve
wee
kly
snap
shot
s
$720
$730
$740
$750
s
$690
$700
$710
per short ton
s e l l e r
$660
$670
$680
USD p
$620
$630
$640
$650
Buy
er O
ppor
tuni
ty
$620
10/3
/201
110
/10/
2011
10/1
7/20
1110
/20/
2011
10/2
8/20
11
FOLIO NO. 8
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Ste
p 1
is u
nder
stan
ding
the
pric
e co
rrela
tions
of t
he fi
nanc
ial t
ool
This
is v
ery
impo
rtant
whe
n us
ing
finan
cial
der
ivat
ives
to h
edge
LME
Bill
etC
orre
latio
nsto
Oth
erPr
oduc
tInd
ices
SGX/
TSI
(last
day
)C
ME/
CR
U62
% C
hina
LME
#1 H
MS
Shre
dded
Bus
helin
gH
RB
Iron
Ore
Bill
et
LME
Bill
et C
orre
latio
ns to
Oth
er P
rodu
ct In
dice
s
Stee
lBen
chm
arke
rTM
391
427
461
760
170
555
403
442
483
722
171
572
9-M
ay-1
1
13-J
un-1
1
401
443
483
680
171
591
406
436
481
695
176
622
11-J
ul-1
1
8-Au
g-11
395
437
476
675
178
584
396
440
477
635
158
543
12-S
ep-1
1
10-O
ct-1
1
0.734
0.159
0.499
0.023
0.785
1.000
0.899
0.898
0.810
0.595
0.818
1.000
6 Mo Co
rrelation
22 M
o Co
rrelation
FOLIO NO. 7
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Wor
ld S
teel
Exc
hang
e U
pdat
eA
stro
ng c
ombi
natio
n is
und
erw
ay
A p
artn
ersh
ip w
ith a
wel
l est
ablis
hed
exch
ange
to p
ower
Wor
ld S
teel
E
xcha
nge
tradi
ng is
in th
e ki
tche
n –
stay
tune
d
W
SE
M/W
SD
brin
gsa
seas
oned
grou
pof
stee
lind
ustry
prof
essi
onal
sW
SE
M/W
SD
brin
gs a
sea
sone
d gr
oup
of s
teel
indu
stry
pro
fess
iona
ls
Rel
atio
nshi
ps w
ith m
any
glob
al s
teel
indu
stry
pla
yers
H
ands
-on
pric
e ris
k m
anag
emen
t exp
erie
nce
with
ste
el in
dust
ry
clie
nts
E
xper
ts in
the
gath
erin
g an
d pr
oces
sing
of h
igh
qual
ity s
teel
pric
e in
dice
s
The
exch
ange
brin
gs w
ell e
stab
lishe
d tra
ding
tech
nolo
gy, c
lear
ing,
and
co
nnec
tivity
to th
e tra
ding
com
mun
ity
D
irect
invo
lvem
ent b
y th
e S
teel
Indu
stry
will
be
a ga
me-
chan
ger i
n pr
omot
ing
Wor
ld S
teel
Exc
hang
e tra
ding
act
ivity
P
hase
1 p
rodu
ct la
unch
will
incl
ude
US
A fe
rrou
s sc
rap
cont
ract
s fo
r:
#1 h
eavy
mel
t, sh
redd
ed a
nd #
1 bu
shel
ing
18
FOLIO NO. 6
Wor
ld S
teel
Exch
ange
Mar
ketin
gW
SE
M
Ther
e is
scr
ap in
dust
ry s
uppo
rt fo
r scr
ap fu
ture
s
•In
crea
sed
pric
e vo
latil
ity h
as a
dded
to in
vent
ory
pric
e ris
k
•S
ome
scra
p pr
oces
sors
hav
e fin
anci
al h
edgi
ng e
xper
ienc
eS
ucce
ssfu
lnon
ferr
ous
hedg
ing
expe
rienc
ete
esup
inte
rest
in–
Suc
cess
ful n
on-fe
rrou
s he
dgin
g ex
perie
nce
tees
up
inte
rest
in
hedg
ing
stee
l scr
ap
•S
ome
belie
ve a
pply
ing
thei
r hed
ging
exp
ertis
e to
ste
el s
crap
can
be
com
e a
mar
ketin
g ad
vant
age
–A
ble
to p
rovi
de fi
xed
pric
e qu
otat
ions
to c
usto
mer
s
•S
teel
scra
ppu
rcha
ses
from
man
ufac
ture
rsar
eof
ten
alre
ady
pric
eS
teel
scr
ap p
urch
ases
from
man
ufac
ture
rs a
re o
ften
alre
ady
pric
e in
dexe
d
19
FOLIO NO. 5
Than
k you
for y
our k
ind a
ttent
ion
Pat
McC
orm
ick
P
at M
cCor
mic
kP
resi
dent
Wor
ld S
teel
Exc
hang
e M
arke
ting
Wor
k:(2
01)5
03-0
920
20
Wor
k: (2
01) 5
0309
20C
ell:
(31
4) 3
78-4
858
pmcc
orm
ick@
wse
mgr
oup.
com
FOLIO NO. 4
Glo
bal S
teel
Info
rmat
ion
Syst
em (G
SIS)
Boo
stin
gYo
urSt
eelI
QB
oost
ing
Your
Ste
el IQ
Wor
ld C
ost C
urve
s:G
loba
l Met
allic
s B
alan
ce•S
teel
She
et•S
teel
Bill
et/R
ebar
/Wire
Rod
•Ste
el P
late
•For
ecas
t to
2035
•All
maj
or m
etal
lics:
•Iron
Ore
•Cok
ing
Coa
l*•Ir
on O
re•P
ig Ir
on/D
RI/H
BI
•Ste
el S
crap
•Ste
el S
crap
Sub
stitu
tes
•Cok
ing
Coa
l & C
oke
*Pow
ered
by
Mar
tson
FOLIO NO. 3
Glo
bal M
etal
lics
Out
look
Rev
elat
ions
from
the
GSI
SR
evel
atio
ns fr
om th
e G
SIS
A
mas
sive
spi
ke in
the
pric
e of
obs
olet
e st
eel s
crap
ld
ith
2015
2016
tif
coul
d oc
cur i
n th
e 20
15-2
016
time-
fram
e.
Key
Que
stio
n: W
ill th
e gl
obal
eco
nom
y an
d st
eel d
eman
d gr
owth
rem
ain
posi
tive
in 2
012
–i.e
. can
we
clea
r the
sec
ond
“fina
ncia
l cris
is h
urdl
e?”
C
hina
will
dras
tical
ly a
lter t
he g
loba
l obs
olet
e st
eel
scra
p su
pply
/dem
and
bala
nce
by 2
025
ppp
yy
A
nd, a
s a
resu
lt, w
ill a
lter t
he la
ndsc
ape
for t
he p
ricin
g an
d S
/D o
f iro
n or
e, c
okin
g co
al, a
nd o
ther
key
ste
elm
aker
s’ ra
w m
ater
ials
S
houl
d th
e gl
obal
eco
nom
y an
d de
man
d fo
r ste
el p
rodu
cts
slow
in 2
012
the
stee
l ind
ustry
will
hav
e a
flatte
r cos
t cur
ve
whi
ch fu
rther
driv
es in
crea
sed
com
petit
ion
C
hine
se d
eman
d gr
owth
will
not
be
enou
gh to
sus
tain
hig
h pr
ices
of r
aw
mat
eria
ls, l
eadi
ng to
a fl
atte
r cos
t cur
ve to
pro
duce
pig
iron
glo
bally
FOLIO NO. 2
The
Secr
et B
ehin
d St
eel S
crap
Pric
ing
$600
600
$525
$600
550
600
Fore
cast
$375
$450
450
500
Shre
dded
Scr
ap
Pric
e (R
HS)
$300
$375
400
450
uirement/CapacityScrap Pr
Ave
rage
A
nnua
l
#1H
M S
crap
Pr
ice
(RH
S)
$225
350
Scrap Requrice ($/t)
Ann
ual
Res
ervo
ir
$75
$150
250
300
Obs
olet
eSc
rap
Req
uire
men
t
$020
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
FOLIO NO. 1
