The Price Of Steel And Iron Will Be Falling, But Not Long

In December 2014, we posted on the falling producer price of steel and iron in 2014 and on further fall in 2015-2016. This prediction was right and the PPI of iron and steel has been falling from 226 (January 2014) to 173 (February 2016). The overall PPI has also dropped by 20 points since 2014.  Here we report that we foresee no general change in the declining trend in the short-term. In 2017, we expect that the producer price index of iron and steel will reach its bottom and start to grow, likely during the next decade. Moreover, the overall PPI will stop falling and dragging consumer prices down.

For price prediction of various commodities, our general approach is based on the presence of long-term sustainable (linear and nonlinear) trends in the evolution of the CPI and PPI in the United States [12]. The difference between components of these indices is not a random one but is rather a predetermined process. Using these trends, one can predict consumer and producer price indices for select goods, services and commodities.

We first reported on the evolution of the producer price index (PPI) for iron and steel in July 2009. We compared our earlier prediction from 2008 with the actual evolution of the difference between the PPI of steel and iron and the headline PPI and made the following forecast:

“In the short run, one can expect a fast recovery of iron and steel prices to the level observed in January-March 2008, i.e. the index will reach the level 210 to 220. However, this recovery will not stretch into 2011, and the index of iron and steel will be declining in the long run to the level of 2001, as depicted in Figure 3. In other words, the period between 2008 and 2010 is characterized by very high volatility, which will fade away after 2011.”

Figure 1 in this post reproduces Figure 3 from the 2009 post, where the green line gives a prediction of the future evolution. Since 2009, we made several updates considering new data on both PPIs (June 2010, February 2012,  December 2012August 2013, and aforementioned December 2014). According to our long-term tradition, we revisit the previously predicted fall in the producer price index of steel and iron and formulate a preliminary hypothesis on the evolution in 2016-2017.  Please notice that the green line was predicted in 2008.

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Disclosure: None.

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