1. IHS OPERATIONAL EXCELLENCE & RISK MANAGEMENT 2015 Material Price Outlook
IHS Material Price Outlook:
Where Are the Pricing Pressures
in 2015?
Top industry analysts provide valuable insight on pricing,
availability and production of key global commodities
7651_0115AA

2. 2
2015 Material Price Outlook
The demand environment is slowly improving. After declining in the first quarter, U.S.
gross domestic product (GDP) rebounded at a 4.6 percent annual rate in the second quarter
of 2014. Real GDP is now projected to increase 2.2 percent in 2014 and 2.7 percent in 2015,
supported by balanced gains in household and business spending, according to IHS Director
Laura Hodges. With federal bond purchases ending in October 2014, however, a potential
headwind to material price escalation is predicted. As for interest rates, Hodges says that
formal increases won’t come until mid-2015 at the earliest.
Other forces impacting the world economy right now include China’s housing market,
which continues to deteriorate—with falling prices weighing on residential construction
starts. Although targeted stimulus may help near-term growth prospects, Hodges says,
long-term structural risks are yet to be addressed. “That’s something to watch closely as
you establish buying plans for 2015.”
Based upon insight from the IHS Pricing & Purchasing Service, this report provides vital
market, price, and cost information for critical commodities in order to help organizations
make informed sourcing and procurement decisions through 2015 and beyond.
The Carbon and Stainless Steel Outlook
Throughout 2014, IHS continued to track a significant oversupply in the carbon steel
market.Combined with the threat of imports, this oversupply continues to suppress prices.
North America is faring best through this period, according to IHS Senior Manager Jason
Kaplan, although some prices saw increases through the year, low utilization is keeping
mill profitability low. “In 2015, we anticipate that capacity will be forcibly removed from
world supply and a subsequent price spike,” says Kaplan, who predicts a buyers’ market for
carbon steel through the end of 2014 followed by a slip into a sellers’ market starting in the
middle of 2015.
“Mills cannot keep losing money forever,” says Kaplan. “In 2015, capacity will be forced out
of the market and prices will spike up as supply fears increase.” For buyers, that could mean
a shift to a sellers’ market during the coming year. “Delivery will be more of a worry than
price.” To offset these trends, Kaplan advises buyers to qualify at least two sources before
procuring carbon steel and to also try to lock in contracts. For 2015, spot buyers should
budget prices that are 10 percent higher in North America, and 15 to 25 percent higher in
Europe and Asia. “Even if your supply is secure,” he concludes, “beware that others will
need to source material.”
In assessing crude steel production economics, Kaplan says that mills need at least 80
percent utilization to be profitable, although some can sustain lower utilization for short
periods and maintain profitability. However, global utilization has been around 75% for an
extended period.
The US mills are doing better, with utilization around 80% for much of 2014, partly as
imports have not posed the threat they have in other territories. However, US mills must
not be complacent. Some price differentials between the US and other regions have opened
up enough so buyers could no longer ignore the benefit of importing, and evidence shows
net trade into the US already increasing.
US Real GDP, annual percent change
Stronger Growth Is Coming
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
201620152014201320122011
Source: IHS

3. 3
2015 Material Price Outlook
The stainless steel market remains better balanced, but is still historically cheap, according
to Kaplan. He points out that stainless steel prices are rising steadily due to demand and
reduced supply. Nickel (and molybdenum) stabilized and will trade in narrow ban, he adds.
Although a risk, Russian sanctions and the Indonesian export ban are unlikely to affect
nickel supply or price during the coming year. Stainless is more consolidated than the
carbon steel market. Supply and demand may not yet be fully in balance, but they are a lot
closer than the carbon steel market,” Kaplan adds, “and increasing demand is making mill
profitability sustainable within the stainless steel market.” He advises buyers to lock in
prices now, rather than buying on the spot. “Prices will rise steadily over the next two years
on base prices, but will end 2016 still well below 2008’s levels.”
Chemicals
Several factors will influence chemical markets in 2015, including energy prices (crude and
natural gas), supply issues (new capacity/ operational sustainability) and demand growth.
IHS Senior Director Howard Rappaport says that these forces can take precedence in the
market, and either drive prices up or down. “There’s new capacity coming online in several
regions, and also the issue of operational sustainability and stability,” he notes. “We had
some unexpected outages and extended-maintenance downtime recently, for example,
that influenced supply.”
(USD/mmBtu
Henry Hub Natural Gas
2.5
2.9
3.3
3.7
4.1
4.5
2016201520142013201220112010
Source: IHS
Stainless 304 ($/metric ton)
United States
Europe
China
Source: IHS
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2011 2012 2013 2014 2015 2016
Capacity reduction, production
discipline and lifting demand
allows stainless to avoid car-
bon’s disruption next year. —
Source: IHSn

4. Unemployment Rate, 2015Q1, Percent
Pockets of the US are tight
Source: IHS
6.5 to 8.0
5.8 to 6.5
4.7 to 5.8
3.0 to 4.7
Source: IHS
(Percent change in 2015)
Wage outlook has been scaled back
0
2
4
6
8
10
12
South AfricaMexicoGermanyChinaBrazilAustralia
Source: IHS
2013 Q3 Forecast
2014 Q3 Forecast
4
2015 Material Price Outlook
Natural gas is a major driver in North America and the Middle East, while other regions rely
on crude oil. Waves of new capacity are coming in the U.S. (based on ethane and propane),
however, it will be at least two to three more years before we see a major impact, says
Rappaport.
Europe will continue to consolidate capacity, while the U.S., Asia and the Middle East
continue building. “Chemical industry margins are robust in the U.S. and are expected to
erode over the next 18 to 24 months,” says Rappaport, adding that supply issues and price
volatility associated with propylene and butadiene will work themselves out with new “on-
purpose” plants.
“The U.S. will have to become more of a net exporter as new capacity comes on,” says
Rappaport. Buyers can expect at least another two to three years before the wave of new
capacity has a significant impact on the situation with both supply-demand and pricing in
the U.S. “Markets are still balanced to tight and the wave of new capacity coming will have
an influence on market conditions,” Rappaport says, “but not right away.”
The U.S. ethylene market will remain balanced to tight over the next year, with effective
operating rates at or above 95 percent. The U.S. and the Middle East will continue to export
ethylene and derivatives due to cost advantages.
Chemical industry prices are coming off near record highs for many products, according to
Rappaport, who expects producer margins to erode over the next 12 months. “We expect
prices to bottom out some time during the second quarter, unless the descending energy
trend shifts significantly” he says. A changing profile of propylene sources in the U.S. will
result in the emergence of additional capacity, says Rappaport, with more coming from
propane de- hydro (PDH) and less coming from ethylene crackers.
As industry feed-slates trend lighter, propylene production from both steam crackers and
refineries will not be able to keep pace with demand growth. Thus, on-purpose production
remains the main avenue to support that growth. Rappaport says that PDH in the U.S.,
Middle East and Asia, along with coal to olefins in China, are winning the on-purpose race.
“The PDH units in China being added will be based on propane imports that compete with
the fuels market,” he notes. “China coal to olefins will face water and environmental issues,
and are very high capital cost.”

5. 5
2015 Material Price Outlook
For 2015, Rappaport predicts a descending price profile with upward potential later in the
year “unless we see further declines in energy prices.” He advises buyers to build some
inventory early in the year as prices reach their low point, but he also expects producers
to attempt to pass along any cost increases, no matter how small. “New US capacity will
not be here in time to have a major influence on 2015 prices, beyond the energy impact”
says Rappaport.
“Some much needed relief is in sight for several products with feedstock ties back to crude
oil (some of it may also come in the form of reduced volatility),” says Rappaport, “ an
unexpected increase in Chinese consumption is one risk factor that could temporarily soak
up some of the available spot material and create a temporary tightening of supply.”
Global Labor Markets
On a global level, the strength of the labor markets is reduced or at least stabilized in many
countries. Wage growth was scaled back for many countries, says Hodges, and growth in
emerging markets was hit hard. “One of the stronger markets—the United States—will
see improvements next year,” says Hodges, “but even there, wages will only lift from 2
percent this year to closer to 2.5 percent over the next two years.”
That said, Hodges sees pockets of growth pressuring wages higher for some occupations
and sectors. “Expect to pay more in these pockets of growth, in the U.S. and even globally,”
she says.
Pointing to Manpower’s most recent Talent Shortage Survey as an example, Hodges says
current shortages have yet to reach pre- recession levels in terms of the percentage of
firms reporting difficulties filling jobs. Overall, just under 40 percent of employers are
having difficulty filling jobs. In the Americas and Asia-Pacific (APAC) regions, that number
increases to 50 percent. Positions that are hardest to fill include skilled trades, engineers,
technicians, sales representatives and accounting/finance staff.
With labor market conditions improving in the U.S. and with the domestic economy
adding 1.6 million jobs during the first eight months of 2014 (compared to 1.4 million
jobs during the same period in 2013), Hodges says conditions could turn the corner in the
U.S. in 2015. And while the largest share of jobs created are in low-paying industries (trade,
transportation, administration, leisure and hospitality), she says the market is tightening
for U.S. college graduates. “That’s something to be concerned with going forward,” says
Hodges, “knowing that you may potentially be paying more for these types of workers.”
Geography also plays a role in the U.S. labor market, particularly in states like Texas with
an unemployment rate close to 5 percent. “Texas is a real star of the U.S. economy; that’s
where the action is,” says Hodges, “and where you can expect to pay a higher above- average
rate for your workers.”
Stainless 304 ($/metric ton)
Source: IHS
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
20142013201220112010200920082007
No discernable wage pressure...so far.
Percentchangevs.year-ago
Unemployment rate, college graduates (Percent)
Source: IHS
0
1
2
3
4
5
6
20142013201220112010200920082007
Markets tighten for US college graduates

6. 6
2015 Material Price Outlook
In2015,Hodgessaysfindingqualifiedandskilledworkerswillbeachallenge.Labormarkets
are improving in the developed world, including the U.S., Japan, the UK and Germany, but
this is from a relatively low growth rate. “Workers in India and China will continue to
receive strong wage gains due to strong demand and inflation,” says Hodges, who concludes
with, “Pockets of growth (particularly skilled workers) should be your concern during the
coming year.”
Agricultural Outlook
Corn
World corn production is forecast to fall in the 2015/16 season as area harvest declines
as global producers react to much lower prices and yields move back towards trend line
according to Brandon Kliethermes, IHS Senior Economist, who says that after three years
of low stocks, production gains and corn carry-over from the last two seasons stocks will
grow significantly. “Corn stocks are forecast to remain high as production continues to
outpace consumption in the short term,” he says.
The surge in corn prices over the last three years led to a significant increase in world corn
area, says Kliethermes, who predicts a decline in world corn area over the next two years.
“More recently for prices it looks increasingly likely that theOctober low in US corn futures
will represent the harvest lows for the 2014/15 crop. Since then prices have rallied as the
US Department of Agriculture (USDA) has reduced its estimate for the US corn crop size
while the world corn balance sheet has actually seen a revision higher to production and
stocks. Large weekly US corn exports along with questions on South American supplies
and potential reductions to the US crop size in January have aided in this rally. For now the
trend is up, and we expect follow-through in this rally into the first quarter, which would
align with seasonal trends.”
Wheat
World wheat production is expected to be flat in 2015/16. “World wheat production will
keep up with demand, allowing stocks to grow year over year,” says Kliethermes. For now
the global wheat balance sheet is more than ample with 2014/15 production 6% above its
five-year average.
Global wheat prices have witnessed support as talk of Russia limiting wheat exports as
their currency falls. Global wheat prices should be pressured lower during the late second
half of 2015 but for now speculation of Russia leaving the wheat business has added upward
momentum. “IHS expects larger winter wheat seedings in the United States but depending
on winter conditions the worlds wheat crop could get much smaller adding to this recent
rally,” Kliethermes predicts”
Cotton
Global cotton production continues to outpace growth in demand, leading to an increased
level of stocks in 2014/15. Concerns of the Indian monsoon worsening lessened, says
Kliethermes, planting progressed well and areas increased. “Declining global area during
the next couple seasons follow lower prices,” he adds, “however, competing crops also have
lower prices, weakening the magnitude of decline.”
Livestock
It was a record year for the U.S. livestock industry, thanks in part to improving consumer
demand for meat products. “Looking at the index numbers, we can see improvements
in consumers’ willingness to pay more for meat products,” says IHS Principal Economist
Ryland Maltsbarger. “That’s good news for the meat and livestock industry in general,
including beef, pork and chicken.”
In reviewing 2014 U.S. inventory and cattle slaughter levels, Maltsbarger says that herd
expansion is on the rise mainly in response to calf prices. In 2014, beef cow inventories
began the year about 5 percent below the five-year average, he says, and “there appears to
be some rebuilding going on with both heifer and beef cows.”

7. 7
2015 Material Price Outlook
In terms of cattle supply, Maltsbarger says that calf crops will reach a bottom in 2014.
“We’re optimistic about this and also about the breeding activity, which should show up in
a significant gain in calf crop in 2015,” he notes, adding that pricing could fluctuate based
on activity in the sector in the coming year. “I’m somewhat doubtful that we’ll see beef
prices rally to the level that we saw in 2014.”
Hogs and Chickens
Starting in late 2013, the spread of porcine epidemic diarrhea virus (PEDv) significantly
reduced hog production, according to Maltsbarger. “That reduction led to a ramp-up in
prices through the first three quarters of 2014,” he says, noting that lower-than-expected
breeding activity also helped to drive those prices up. And while sow farrowing was up
modestly in July and August in anticipation of the coming year, tight hog suppliers will
likely be prevalent. “We kept up a stronger pace of hog slaughter, which will lead to lower
pork prices through the end of 2014 and into 2015,” says Maltsbarger.
The broiler market continues to post strong net returns, according to Maltsbarger, who says
2014 production is weak in the sector despite a strong net returns outlook. “The year ahead
appears likely to be stronger,” he says. “We saw the industry begin to hold steady during the
third quarter—a time when you’d usually see seasonal declines.”
Conclusion
As evidenced by this report, commodity prices will remain volatile into 2015 and beyond.
By actively monitoring weekly—or even daily—price movements, trends and other forces,
buyers can position their companies for success in markets that aren’t always easy to predict.
CalfCrop(MillionHead)
Livestock Outlook: U.S. Cattle Supply Outlook
31
32
33
34
35
36
37
38
2019201820172016201520142013201220112010200920082007
Source: IHS
Calf Crop
Cattle on Feed, Jan. 1
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
CattleonFeed(MillionHead)

8. IHS Supply Management Solution
Deliver Cost Savings, Strategically Manage Spend, and Drive Procurement Excellence
The Pricing & Purchasing service, a part of the IHS Supply Management solution, delivers
timely, accurate price forecasts and supplier cost analyses, helping you ensure consistency,
increase visibility and maximize ROI from procurement spend. IHS can help you see where
prices have been and where they are going with a database of thousands of price, wage and
input cost forecasts and more than 500,000 historic data concepts.
Learn from a roster of commodity experts and industry analysts that can help you to:
• Meet and sustain cost savings targets
• Manage price volatility for critical commodities
• Foster agility to maintain profitability
• Understand material input and supplier costs to improve negotiations
• Transform procurement from reactive and tactical to proactive and strategic
• Quantify material inputs and supplier costs to improve negotiations
• Expand the expertise of your team with a proven team of industry experts
• Manage price volatility for critical commodities
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8
2015 Material Price Outlook