The Covid-19 pandemic has created significant uncertainty in the commodity market. Metallurgical operators, for example, have responded with capacity cuts, idling stops or complete shutdowns.
Covid-19 has caused huge disruptions in the global economy, having a major impact on the steel and other commodity industries. For example, global demand for steel sheets is set to decline 20% YoY in Q2 2020 and about 8% YoY. These unprecedented and unfavorable market conditions raise fundamental concerns for steel producers and other commodity producers regarding the management of their assets and portfolios.
These tough decisions are based on an assessment of a complex mix of market, property and political considerations. However, traditional scenario-based decision analysis does not adequately address the importance of flexibility associated with different approaches to managing excess supply. In this overview, we show how CRU Consulting’s real option capabilities can be used to quantify and assess the range of financial performance in a way that addresses critical interdependencies, thereby enabling more informed choices that are fully aligned with the risk preferences of individual firms. Most recently, ArcelorMittal announced that it has ceased production at its Zenica plants in Bosnia.