 Long-term iron ore price modeling: Marginal costs vs. incentive priceAlexander Pustov, Alexander Malanichev and Ilya Khobotilov Resources Policy, 2013, vol. 38, issue 4, 558-567 Abstract: The paper studies and applies the approaches to forecast long-term (LT) real prices of iron ore. This price is crucial for valuation of investments in Greenfield iron ore projects on the horizon of more than 5 years. The forecast is obtained by three different approaches which are usually used by investment bank analysts: marginal costs approach and 2 approaches based on calculation of incentive price. The paper concludes that there has been a structural shift on the iron ore market and LT iron ore prices will be higher by 20–30% than the average of industry forecasters suggest. This is related to the 2 key factors which were taken into account in this study—depletion of existing iron ore deposits and targeted return on investments for new projects. In addition, escalated industry costs inflation is claimed to be the factor which will bolster nominal iron ore prices at high levels in the long-term. Using a Monte-Carlo simulation approach, confidence interval for future iron ore price was estimated. Keywords: Marginal costs; Incentive price; Long-term price; Iron ore; Forecasting (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:38:y:2013:i:4:p:558-567 DOI: 10.1016/j.resourpol.2013.09.003 Access Statistics for this article Resources Policy is currently edited by R. G. Eggert More articles in Resources Policy from Elsevier |
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