System for Scenario Planning and Forecasting World Prices

The current situation in the global markets of steel

and metallurgical raw materials (iron ore and coking

coal) is characterized by a price drop. This is due to

both the slowdown in the demand from the Chinese

economy and the increase in supply due to new mining

projects. At the same time, the development of mining

and metallurgical industry and making investment

decisions require understanding of longterm price

dynamics. An option is to use forecasts prepared by

analysts of investment banks and independent con

sulting companies. Often, in order to avoid random

errors, it is assumed that the average value for a group

of these forecasts is considered to be a consensus fore

cast [1].

Forecasts made by many analysts from the above

mentioned organizations are based on the hypothesis

that suggests that the price of raw materials will return

to its historical average value or trend. As a result, a

variety of sources present a uniform profile of the pre

dicted price, i.e., the nearest forecast period reflects

the current upward or downward trend in the market;

then, the price drops to its longterm low value.

Unfortunately, in most cases, this forecast is of little

use for justifying the company’s growth strategy in

general and major investment projects. In mining and

the metallurgical industry, the term of design, com

missioning, and reaching full capacity for such

projects may take 5–10 years. The calculation of cost

adjusted to the current time, payback period, and

other parameters of the project based on consensus

expectations often leads to a negative result, which

implies that the project cannot provide a return on an

investment. In other words, the use of the consensus

forecast can reduce the risks of a company, but will not

allow it to seize the opportunities offered by the mar

ket.

The consensus forecast poorly reflects the

medium and especially longterm price trend. If we

try to interpret the reasons for substantial...