The market impacts of COVID-19 are unknown in scale, varied and staggered in time across the world. The steel raw materials markets are being affected to a lesser or greater extent depending on the demand-side and supply-side regional focus, and exposure to oil prices and exchange rate fluctuations, both of which are impacting delivered costs. The current iron ore price is holding up well, whereas that for met coal has dropped. At a high level, this is the result of differing supply-side trends over recent months, and the reliance on Chinese seaborne demand, for iron ore, which is now strengthening, and Indian demand, for met coal, which is slowing and shrouded with uncertainty.
There are widely varying scientific and economic views currently in circulation, as well as a broad range of commodity-specific influences, all leading to many potential outcomes over the next 1 to 5 years. Put simply, this now means that our base case, point forecasts come with increased risk. To better understand and quantify this risk, we are using scenario analyses as they provide a range of plausible outcomes for demand, supply and price. This approach enables you to stress-test your business by considering what might happen in a ‘mildly impacted’ versus a ‘severely impacted’ world and allows you to start preparing for different eventualities. CRU Consulting has developed 3 high-level scenarios which can be applied across the mining, metals and fertilizer industries. In the Insight below, the focus is on uncertainties in steel raw materials markets and our approach to running these industry-specific scenarios.
CRU Consulting’s approach to scenario analysis: an overview
CRU Consulting’s scenario analysis framework is well-established. Our models are both flexible and transparent, and they help you to better understand the impact of a global recession (to a greater or lesser extent) on steel demand through the full value chain, from end-use demand through to raw materials. We use revised GDP and IP forecasts to drive these macro scenarios through our demand-side model and adjust our supply-side expectations based on real-time conversations and research by our experts in local offices around the world. We ensure that our macro expectations – under each scenario – flow through to costs and, ultimately, to our price deck.
