Steel Case Studies

Case Study: Steel Cost Savings

Prices for hot-rolled sheet peaked in the third quarter of 2008. In IHS Global Insight's first-quarter 2008 forecast, we predicted a third-quarter peak, and forecasted fourth-quarter prices at $637/short ton. Our smallest clients buying from mills would typically procure at least 48,000 tons per year. A buyer choosing to float the price on a 48,000-ton contract delivered over the following four quarters would have saved $24.7 million* over a client who locked in a contract price at the peak-or half the contract value.

* Based on locking in the price in July 2008 at $1,032 for delivery at 12,000 tons per quarter over the next four quarters.

A typical steel buying company could have saved $24.7 million on a year's worth of steel if they had the service.

Case Study: Time-Sensitive Steel Buy Decision

This case study came from one of the largest steel producers. This company wanted a long-term outlook for steel prospects in Central Europe that would guide their investment decisions in the region. The study was to examine both supply and demand for steel produced in the Czech Republic, Hungary, Poland, and Slovakia.

The study approached the company's needs from each direction. On the supply side, detailed outlooks were prepared for prices and availability of materials to make steel, including coal, ore, scrap, and natural gas. Special attention was paid to disparities that would affect the selected region compared to the rest of the world.

The demand outlook examined internal demand from the four countries, as well as other Central European nations. Economic growth, the health of manufacturing, and the need for new construction were factored in. Furthermore, the potential for export to Western Europe, Asia, and North America was explored, along with competition from Ukraine, Russia, and other low-cost competitors from the former Soviet Union.

The report allowed the client to have an independent voice when formulating its business plan. IHS Global Insight's conclusions were compared with the company's internal outlook, and differences were discussed in depth at a meeting between company management and analysts from IHS Global Insight. The study was an integral part of developing the steel company's long-range business plan. The reconciliation of this study with the company's own internal outlook led to a series of favorable investment decisions by the company in Central Europe.

Case Study: IHS Global Insight's client-specific outlook helped avoid excess inventories, saving millions!

Our steel service director presented to a steelmaker's production group in September 2008 as they were setting their 2009 fiscal year budgets. After a great 2008, the group was very upbeat and anticipated continued high output and profits for the subsequent year. In our analysis, we examined each major end-market the company served and IHS Global Insight's projections for the coming year. We then translated the outlook into ramifications for steel by product type (construction on rebar, heavy machinery on plate, etc). Our uniformly gloomy outlooks (even before Lehman Brothers collapsed) signaled the company would need to curtail production amidst falling prices.

Following our presentation, the audience was dead silent. When asked if the presentation was of any assistance, the chief operating officer answered, "It was extremely valuable, but you just kicked the bottom out of all our plans for the coming year."

In mid-2009, we reconvened with some members of the same planning team. They said that while our outlook was tough to hear, it forced them to rethink their plans and helped avoid excess inventories, saving millions!