Team 4

Amit Tyagi
Harmanjit Singh
Mohini Jain
Nandini Chandrasekhar
Rahul Chakraborty
 OBJECTIVE
Objective

Data
DATA

 Background
 Quick Look
 Issues
 Preparation

ANALYSIS
Analysis
 Naive
 Exponential Moving Average
 Time Series Forecasting

RESULTS SUMMARY & INSIGHTS

 INDUSTRY
Industry
 Very cost intensive
 Major raw materials used for construction include sand, cement, steel etc.
 Prices of raw materials are driven by the price of crude oil, indicating
fluctuation in price of the raw materials.
 PURPOSE
Purpose
 To predict cement prices on monthly basis in context of India.

 Stakeholders
STAKEHOLDERS

 Builders/dealers in the construction industry or cement production

companies to plan capacity expansion
 Benefits
BENEFITS
The forecasts will serve as a valuable tool to help the construction industry
make important logistic decisions such as:
 Timing of purchase
 Inventory Management
 Strategically allocate budget in purchasing cement
InThe
effect, the outcome
outcome would bewould
better be betterplanning
resource resourceand
planning and
sourcing sourcing
leading to increased savings
leading to increased savings
 SOURCE
Sourc e: Monthly Crude oil and cement prices from www.indiastat.com

 Time
TIME Period:
PERIOD Data available for the period Jan 2009 – May 2011

 Forecast
FORECASTPeri June 2011 – Aug 2011

 Based on monthly prices of cement and oil for the years 2009 and 2010
 Average Price of Cement in Major Consumption (Centers Per Bag of 50 kg (In Rs.241)
 Monthly Average Price of Indian Basket of Crude Oil (in $/barrel converted to Rs3471)

 Crude oil to be explored as a predictor for cement prices

 Gaps/Issues in data
 Cement prices were missing for the data period Jan 2011 to Mar 2011
 Oil Prices were available in US dollar
 Correlation between Cement Prices and Oil Prices was low at 0.33

 Moving Average
 Missing data imputation in cement prices using the method of Moving
Average and straight line method
 Oil prices converted to Indian Rupees using historic conversion rate
corresponding to each data point sourced from www.oanda.com
 Cement
• Level: Averages around 237.5
• Trend: No clear Trend present in the series
• Seasonality: No significant pattern
• Stationary series
• Peak around the month of April every year

Oil
• Level: for oil prices is around 3500
•Trend: Clear increasing trend
• Seasonality : No significant pattern
• Non Stationary Series
• 2010 values follow a very smooth pattern
 Cement data displays monthly seasonality
Naïve 12-month ahead forecast
Forecast values and Error Measurements attached below
290.00
Forecasted
280.00 Time Cement Prices
270.00 June. 2011 240.00
260.00
July. 2011 233.00
Aug. 2011 225.00
250.00

240.00

230.00 Parameter Value

Average Error -0.30
220.00
Validation MAE 12.68
210.00 Period RMSE 16.04
200.00 MAPE -0.43%

Cement Prices Naïve Forecast

  Cement data does not depict trend but has 12 month seasonality
 Holt-Winter No Trend method of Exponential Smoothing
 Data partitioned into 24 months Training and 5 months Validation
 Forecasts on validation set:
•The RMSE error is lower for the
Time Plot of Actual Vs Forecast (Training Data)
method than Naïve forecasting.
•Both Exponential and Naïve
290
280
Cement Prices

270
260 Validation method systematically under
250 Period
240
230
predicts the cement demand
220
210
200
MAPE -0.51%
MAE 19.24
Time
RMSE 10.78
Actual Forecast

Time Actual Forecast Error LCI UCI

Time Forecast LCI UCI
Jan. 2011 237.67 240.10 -2.43 219.09 261.11
Jun. 2011 240.10 219.09 261.11
Feb. 2011 238.56 237.66 0.90 216.65 258.67
July. 2011 237.66 216.65 258.67
Mar. 2011 238.69 233.27 5.42 212.26 254.27
Aug. 2011 233.27 212.26 254.27
Apr. 2011 280.00 231.33 48.67 210.33 252.34
May. 2011 276.00 237.24 38.76 216.23 258.24
  Independent Variables : time & Dummy variables for Q1, Q2 and Q3 ( Q4 as Base Quarter)

260
250 •The RMSE error is lower for the method
240
Test Data

230
than previous methods.
220 • However the method systematically
210 under predicts in validation set
200
• Adjusted R 2 for the model is .3345
July. 2010
Mar. 2009

July. 2009
Sept. 2009

May. 2010
Jan. 2010

Nov. 2010
May. 2009

Nov. 2009

Mar. 2010

Sept. 2010
Jan. 2009

Predicted Value Actual Value

290
Validation Data

270

250

230

210
Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May. 2011
  Independent Variables : time & Dummy variables for each Month( Dec. as Base Month)
260
Test
250 •The RMSE error is lower for the method
240
Data than previous methods.
230
220 •Method has similar errors in validation
210 and test sets
200 •Adjusted R 2 for the model is .5364

Predicted Value Actual Value

300
280
Validation 260
Data
240
220
Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May.
2011
  Independent Variables : Change in Crude oil & Dummy variables for each Month( Dec. as
Base Month)

Test 260
•The RMSE error is lower for the method
Data 240 than previous methods.
220 •Method systematically under predicts in
200
validation/Test Set
•Adjusted R 2 for the model is .5964

Predicted Value Actual Value

290

280

270
Validation 260
Data
250

240

230

220
Jan. 2011 Feb. 2011 Mar. 2011 Apr. 2011 May. 2011
 Based on Model 3 the forecast for June 2011 is:
 Point Estimate: 244.67
 95% confidence interval is (230.50,258.9)

Autocorrelation of Residual / Data

1 Set #1
0.5

-0.5

-1
1 2 3 4 5 6
Number of Lags
 INSIGHTS
• April and May have at least 10%
higher cement prices than December
• Cement Prices are affected by
previous months change in Oil prices
and not oil prices themselves
• Crude prices have a positive trend
overall last two years.
RECOMMENDATIONS
•Inventory should be brought in
December for next fiscal year
rather than April/May
• Track changes in crude prices on
monthly basis to deduce future
cement prices