The Grey Chronicles

2008.August.17

Price Elasticity of NSC’s Raw Steel Imports


Hottick’s NSC ordered replenishment of raw materials: slabs and Hot-rolled coils on a quarterly basis, whereby raw materials needed for a first quarter of a year, maybe ordered a quarter or two the previous year, dependent on the country source of material.

From 1994 to 1999, about 15 steel manufacturers supplied NSC with slabs from countries such as China, South Korea, Brazil, Australia, Mexico and Russia through several traders or direct company sales representatives.

The raw data used in the computation of price elasticity for slabs and hot-rolled coils is included in the Appendix N.


Minitab 14)

Figure 26: Slabs Fitted Regression Line Plot (Data: NSC, Graph: Minitab 14)

Using the confirmed purchase orders for quarterly deliveries to NSC, refer to Appendix N, a fitted regression line through software, Minitab, Figure 26, shows the relationship for slab:

Quantity = 21190 – 10.16 x Price (eq. 7)

Using this demand curve (eq. 7), the elasticity coefficient was computed using (eq. 4), which yielded an average of -0.12, very price inelastic.

Generally, the demand for steel in the long-run is very price inelastic—between -0.2 and -0.3 (Barnett and Crandall, 2002). The results of price elasticity for NSC’s slabs at -0.12, and NSC’s HRCs at -0.50, although accounted for in a short-run, i.e., 1995 to 1999, are consistent with the range of long-run price elasticity of demand for steel.

NSC flat carbon steel crude production shows a strong correlation to the following factors: Philippine import volume of cold-rolled coils, hot-rolled coils, hot-rolled plates, and tinplates. It exhibited, however, a weak correlation to the Philippine and ASEAN Semi-Finished and Finished (SF&F) steel imports .


Notes:

Minitab, Inc., (2003). MINITAB Statistical Software, Release 14 for Windows, State College, Pennsylvania. 2003. back to text

Barnett, Donald F, & Robert W. Crandall (2002), Industry Studies Steel: Decline and Renewal. USA: M.E. Sharpe, 2002. Duetsch, Larry L. (ed), p. 129. back to text

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