1. Problem recognition, definition and evaluation
In previous chapter, the gold price was forecasted using regression model with Polynomial Formula which had been tested and validated [1]. Then, the predicted gold price is used for estimating steel prices and lending rate for next three years.
2. Development of the feasible alternative
The estimated steel prices and lending rate will refer to predicted gold price.
3. Development of the outcome
Figure 1 and figure 2 present range estimate of billet and scrap steel prices for next three years.
Figure 1: Average Monthly Billet Steel Price Forecast Output 2012 –2016 (source: author)
Figure 2: Average Monthly Scrap Steel Forecast Output 2012 –2016 (source: author)
Meanwhile, estimate of Indonesia lending rate based on gold equivalency is developed as presented in Figure 3.
4. Criteria of Selection
The model is selected if it follows current conditions in terms of steel-gold prices and lending rate.
5. Analysis
Range estimate of average billet steel price on December 2016 will be between 750 and 1014 USD/Tonne, and range estimate of average scrap steel price on December 2016 will be between 704-1073 USD/Tonne. The price will increase according to future global demand outlook of steel industry particularly generated by emerging countries such as Brazil, India, Mexico, Turkey, China and ASEAN, which have strong fundamentals for local steel demand growth [2].
As shown in Figure 3, estimate of yearly average corporate lending rate in Indonesia Rupiah will be 11.45%-11.50% per annum in 2016. The forecasted rate is in line with current situation, in which Bank Indonesia has regulated Financing Institutions to reduce Net Interest Margin (NIM) and lower lending rate [3], as well as publish Prime Lending rate [4] in order to increase lending distribution for real sector investment.
6. Selection
Finally, the forecasted steel prices and lending rate based on gold price until 2016 will be used, since it has followed the current trend and situations.
7. Performance monitoring and post-evaluation of results
This article resulted interesting finding that actual prices of billet and scrap steel used as main material in offshore pipeline has shown range value consistently in term of gold equivalent (ounce gold / tonne steel) [5]. And it was figured out that lending rate has had better correlation with gold instead of inflation, thus gold was treated as reference in forecasting average Indonesia’s corporate lending rate [6]. However, further research could be undertaken to comprehend the linkage between gold value and lending rate.
In the next chapter, cost index of offshore pipeline project in Indonesia will be built using steel prices and lending rate based on gold value.
References:
1. Asmoro, Trian Hendro. (2012, Oct 18). Gold Price Forecast Model for 2012-2016. Retrieved from: http://aacemahakam.blogspot.com/2012/10/w14tri-gold-price-forecast-model-for.html
2. Askerov, Eldar. (2012, April 24). Global economic outlook and steel demand trends. Retrieved from: http://www.steelonthenet.com/pdf/worldsteel_global_economic_outlook_23-Apr-12.pdf
3. Nasution, Dr. Darmin. (2011, Jan 21). Memperkuat Stabilitas Menuju Pertumbuhan Berkesinambungan: Sebuah Tantangan Transformasi. Retrieved from: http://www.bi.go.id/NR/rdonlyres/FB40DB17-1B38-47A0-ACC8-9836DFF0D7E4/22063/pidato_gbi_bankersdinner_11.pdf
4. Bank Indoensia. (2011, Feb). Prime Lending Rate Transparency by Conventional Commercial Banks in Indonesia. Retrueved from: http://www.bi.go.id/NR/rdonlyres/DCE4A596-55CB-40F2-B576-1DF5CDB4074D/22641/Leaflet_SBDK_en1.pdf
5. Asmoro, Trian Hendro. (2012, Oct 17). Exploring Cost of Fund against Gold Value. http://aacemahakam.blogspot.com/2012/10/w12tri-exploring-cost-of-fund-against.html
6. Asmoro, Trian Hendro. (2012, Oct 10). Scrap Steel in Gold Equivalent. http://aacemahakam.blogspot.com/2012/10/w11tri-scrap-steel-in-gold-equivalent.html
Why, after going to all the trouble of creating a model which shows that ounces of gold are reliable predictors of the price of steel, are you back to using $$/Tonne? Didn't you write hundreds of words proving that using dollars per tonne was NOT a reliable predictor of the future?
ReplyDeleteSee my comments on your paper. You have all the pieces for a really sensational paper (too many pieces, actually) but you need to edit your paper and focus primarily on what is required to qualify for your CCC/E Exam. All that you need is to take the nice work you did on proving gold was a reliable predictor of steel prices and then using ounces of gold as the baseline, project into the future what steel will cost, not using any dollar denominated index, but ounces of gold.
Gotta get ready for my flight to Lagos but will be on line during the week but may not be able to turn your revisions around within 24 hours. You know how long those kick off sessions can last!!!
Almost there, but EDIT, EDIT, EDIT..... Talk to Hari Kumar if you wish...
BR,
Dr. PDG, Jakarta
Dr Paul,
ReplyDeletein the end i kept using $/USD because that's market price. the source of it came from gold equivalent anyway. so..it was just converting.