STUDY ON PRICE VOLATILITY OF ASSOCIATED FACTORS IN INTEGRATED
STEEL MANUFACTURING BUSINESS WITH SPECIAL FOCUS ON INVENTORY
OF RAW MATERIALS
Name:- Subhajit Nandi
Roll no:- 23MB4015
Registration no:-
23P40020
Overview of Indian Steel Market:-
• India Iron Steel Market Size was valued at
USD 180.8 Billion in 2022. The Iron Steel
industry is projected to grow from USD 188.5
Billion in 2023 to USD 264.0 Billion by 2032,
exhibiting a compound annual growth rate
(CAGR) of 4.30% during the forecast period
(2024 - 2032).
• Indian Steel Industry contributes to all the
facets of economy, including GDP, industrial
and infrastructural development. The steel
industry contributes approx. 2.5% to national
GDP, employing 2.5 million people, directly &
indirectly.
• India’s finished steel consumption stood at
119.17 MT in FY23 and 138.5 MT in FY24.
Factors
Affecting Price
Volatility of
Base Metal and
Steel:-
Demand and Supply:- Financial &
Supply relates to the Energy
Global Factors: Economic
availability of goods and Commodities
Geopolitical services while demand Factors:-
relates to consumption. In Influence:- Prices
tension, Pandemic Inflation,
aftermath, Financial
the case of low supply and of Crude oil, Iron
high demand, customers Economic Policies,
Speculations. compete to get hold of the Ore, Natural gas
resources, thus driving up Currency
etc.
the prices. Exchange rates.
List of Variables Selected For Plotting the Volatility Model:-
Chosen Dependent Variables for this project:-
Dependent Variable Source
Price of Structural 100X100 Steel Mint
Price of TMT-Rebar 500d 12mm Steel Mint
Chosen Independent Variables for this project:-
Research Area Independent Variable Source
Commodity Cycles NIFTY Commodity Index NIFTY Indices
Industrial Growth Rate Index of Industrial Production Ministry of Statistics &
Programme Implementation
Energy Commodities Iron Ore Prices Steel Mint
Energy Commodities Coal Prices Steel Mint
Inflation Commodity Price Index (CPI) Ministry of Statistics &
Programme Implementation
Currency Exchange Rate US Dollar Index Yahoo Finance
Results for Structural Steel (100x100):
Correlation Insights:
• Coal Prices: Strong positive correlation (r = 0.731). As coal prices increase, the
price of Structural Steel rises significantly.
• Iron Ore Fines: Significant positive correlation (r = 0.604). The higher the price of
iron ore fines, the higher the cost of Structural Steel.
• Currency Exchange Rates: Strong positive correlation (r = 0.682). Structural Steel
prices increase with a stronger US Dollar Index, indicating that exchange rate
fluctuations significantly impact steel prices.
Multivariate Regression Findings:
• Key Predictors:
• Coal Prices: Coefficient = 22.12, p-value = 0.0003158. This is highly
significant, indicating that for every 1-unit increase in coal price, the price of
Structural Steel increases by 22.12 units.
• Iron Ore Fines: Coefficient = 1.108, p-value = 0.044. Statistically significant,
showing a positive relationship between iron ore prices and steel prices.
• Currency Exchange Rates (USD): Coefficient = 425.62, p-value = 0.002. A
strong predictor, indicating that steel prices rise sharply as the USD strengthens.
Results for TMT Rebar (Fe 500D-12mm):
Correlation Insights:
• Iron Ore Fines: Strong positive correlation (r = 0.787). Higher prices of iron ore fines
lead to a significant increase in TMT Rebar prices.
• Coal Prices: Positive correlation (r = 0.654). As coal prices rise, the cost of TMT
Rebar also increases.
• Currency Exchange Rates: Strong positive correlation (r = 0.759). A stronger US
Dollar Index is associated with higher TMT Rebar prices.
Multivariate Regression Findings:
• Key Predictors:
• Coal Prices: Coefficient = 22.06, p-value = 0.0003. Strong positive impact,
indicating that as coal prices increase, TMT Rebar prices rise significantly.
• Iron Ore Fines: Coefficient = 0.236, p-value = 0.009. Positive and statistically
significant, showing that higher iron ore fines prices lead to an increase in TMT
Rebar prices.
• Currency Exchange Rates (USD): Coefficient = 285.86, p-value = 0.001.
Significant positive effect, meaning that fluctuations in the USD have a substantial
impact on TMT Rebar prices.
Strategies to mitigate the Financial Risks arising due to
Price Volatility:-
Market Analysis and Forecasting:
Regular analysis of the commodity markets can help MSP Steel
better predict future price trends and make informed purchasing
decisions.
•Commodity Monitoring: Keep track of key indicators like
global steel demand, energy prices (coal, oil), and
macroeconomic trends (inflation, currency rates) to anticipate
price changes.
Cost Control and Efficiency Improvements:
To maintain profitability even when prices fluctuate, operational
efficiency is crucial:
•Invest in Technology: MSP Steel can invest in automation and
energy-efficient technology to reduce production costs and
increase output efficiency.
•Lean Operations: Adopt lean manufacturing principles to
reduce waste, improve production cycles, and optimize their
inventory to prevent the risks of over stocking and under
stocking.
Inventory Optimization Using EOQ
(Economic Order Quantity):-
The Economic Order Quantity(EOQ) is that
inventory level, which minimizes the total
ordering and carrying costs.
This model deals mainly with two costs:-
•Ordering Cost: Ordering cost is placing
an order and securing the supplies.
Ordering cost depends upon the number
of orders placed and the number of items
ordered.
•Carrying Cost: Carrying cost or holding
cost refers to the cost of keeping the
materials which includes capital cost, cost
of storage and cost of deterioration and
redundancy.
Inventory of MSP steel
for June:-
MAX
LEAD MIN MIN MAX NORMAL
RAW PERIOD MONTHLY
TIME (IN PERIOD(IN CONSUMPTIO CONSUMPTIO CONSUMPTIO RATE (/ TN)
MATERIALS (IN DEMAND
DAYS) DAYS) N (TN/day) N (TN/day) N (TN/day)
DAYS)
PET COKE 21 16 26 67 72 70 3400 ₹15,600.00
SOUTH
AFRICAN 21 16 26 667 720 694 23000 ₹10,550.00
COAL
IRON ORE
30 25 35 4567 4932 4750 175000 ₹5,900.00
FINES
IRON ORE
30 25 35 333 360 347 25000 ₹5,900.00
LUMPS
SCRAPS 7 6 8 217 234 226 7500 ₹34,450.00
PIG IRON 7 6 8 33 36 35 7000 ₹37,500.00
EOQ for MSP steels inventory:-
MONTHLY
RAW CARRYING COST (1% OREDERING EOQ(in
DEMAND (IN
MATERIALS 0F RATE PER UNIT) COST TON)
TON)
SOUTH
₹105.50 ₹1,700.00 23000 861
AFRICAN COAL
IRON ORE
₹59.00 ₹1,950.00 175000 3401
FINES
IRON ORE
₹59.00 ₹2,100.00 25000 1334
LUMPS
SCRAPS ₹344.50 ₹550.00 7500 155
PIG IRON ₹375.00 ₹400.00 7000 122
•Calculation of Stock levels:-
For effective material control and to avoid
overstocking and understocking of materials, an
important requirement is to decide upon various
levels of materials these levels are maximum level,
minimum level and re-order level.
• Maximum Level:- The Maximum Level
indicates the maximum quantity of an item of
material that can be held in stock at any time.
The stock in hand is regulated in such a manner
that normally it does not exceed this level.
• Minimum Level:- The Minimum Level indicates
the lowest quantitative balance of an item of
material which must be maintained at all times
so that there is no stoppage of production due to
the material being not available.
• Reorder Level:- When the stock in hand reach
the ordering or re-ordering level, store keeper
has to initiate the action for replenish the
material.
Stock Levels for MSP
Steel:-
SOUTH IRON IRON
Level of PET PIG
Formula AFRICAN ORE ORE SCRAPS
Stock COKE IRON
COAL FINES LUMPS
REORDER
Maximum Rate of Consumption
LEVEL 1,872 18,720 1,72,620 12,600 1,872 288
× Maximum Reorder period
(tonn)
MAXIMUM Reorder Level + Reorder Qty –
LEVEL (Minimum Rate of Consumption 5,272 19,581 1,76,021 13,934 2,027 410
(tonn) × Minimum ReOrder Period)
MINIMUM Reorder level – (Normal Rate of
LEVEL Consumption × Normal Re- 413 4,157 30,135 2,205 294 47
(tonn) Order Period)
THANK YOU
