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 [1, 2]. 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.
On Seekingalpha, 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 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 2012, and August 2013). Here we revisit the previously predicted fall in the producer price index of steel and iron and formulate a preliminary hypothesis on the evolution in 2014-2016.
Figure 2 displays the difference between the PPI and the index for iron and steel (BLS code 101) since 1985. Between 1985 and 2000, the curve fluctuates around the zero line, i.e. there
