Price Volatility of Base Metals and Steel A Case of a Large Automotive Manufacturer

Abstract

Price volatility is experienced by almost all commodities. Geopolitical pressures, pandemics, and material shortages are only a few of the possible causes to the price volatility. The thesis thus studied the characteristics and impact of base metal and steel price volatility on a large automotive manufacturer. The base metals and steel materials were chosen, as the thesis were in collaboration with the large automotive manufacturer. The thesis applied both quantitative and qualitative methods. Firstly, a literature study was initiated to identify causes of price volatility and impact on organisations. The characteristics were then quantified, to enter the regression analysis. The variables were analysed through an iterative, bivariate, and multivariate regression process. The findings resulted in a descriptive model, that interpret price volatility. Further, the findings from the impact of price volatility were then interpreted to create the interview questions. The interview results were then analysed in comparison with both the findings from previous literature and the results of the regression analysis. The regression analysis resulted in three models. The results concluded a significant price volatility spillover between energy commodities and the dependent variables. Further, inflation and industrial production were both found to have polynomial relationships with base metals' price volatility. For steel, polynomial relationships were found with both industrial production and the input materials. The qualitative analysis found both direct and indirect impacts on the case corporation. Increased risk premiums were the direct impact of volatility. The indirect impact was related to the suppliers’ financial distress, which was due to cash flow volatility impacting their financial performance. Suppliers' financial distress increased the risk of bankruptcy, which transferred as a cost to the case corporation due to long integration times. For future studies, it would be of interest to include the impact of supply and demand as independent variables in the multivariate regression. Lastly, the quantification of the indirect costs identified in this thesis would be of value.