Indian J.Sci.Res.

7 (1): 1200-1204, 2014 ISSN: 0976-2876 (Print)

ISSN: 2250-0138(Online)

PREDICTION OF MONTHLY PRICE OF IRON ORE BY USING ARTIFICIAL NEURAL

NETWORK

MOHAMMAD REZA MOGHADDAMa1, MASOOD MANJEZIb, AMIR HOSSEIN MEHR DANESHc

AND GHOLAMHASSAN KAKHAd
a
Islamic Azad University, Tehran-Jonob Branch, Iran
bcd
Tarbiat-Modares University, Tehran, Iran

ABSTRACT
Iron ore is the basis of production of one of the metals the production of which is one of the main indicators of economic
development which, due to its distinctive attributes, is regarded as one of the most important consumed metals in the world. The
global price of iron ore is defined based on supply and demand variables. Existence of consequent cycles of ebb and flow of price is
due to balance of global supply and demand for this metal. In order to predict the global price of iron ore, based on numerous
effective parameters like price of steel, steel production index, price of oil, iron production index, aluminum price, index of GDP in
global scale and complexity of relationship among them, one can use methods such as artificial neural networks, phase logic, etc. In
the present study, artificial neural network was used as a model for prediction of monthly price of iron ore. Comparison and
through examination of different networks led to selection of three-layer feed-forward network with post-propagation learning
algorithm with 7 neurons in input layer, 7 neurons in hidden layer and 1 neuron in output layer as an efficient network. Finally,
after due sensitivity analysis, it was found out that parameters of iron production index, internal GDP index and steel price have
respectively the highest impact on iron ore price.
KEYWORDS: Iron Ore, Price, Artificial Neural Network, Steel

The market of iron ore with its numerous agents

and contributors has been affected by different conditions
and variables. Small and large producers, permanent and
seasonal exporters and therefore, different agents have
been active in this industry. On one hand, upstream and
downstream market analysis have been paid attention to
and different agents consider not only product price but
also price of initial ingredients like iron ore, coke and
other influential factors such as oil, transportation fee and
demand value of consumptive or alternative products so
that rise or fall of price of iron ore should be emphasized
based on its influence on demand and price of other
products or being affected by them [1]. Iron ore is the Figure 1: Monthly Variation of Iron Ore Price
basic initial component in steel production. About 10 to At the moment, pricing of iron ore is based on
20 percent of total cost of steel is attributed to iron ore so seasonal agreements of major producers of iron ore and
that identification of factors affecting price of iron ore can major consumers of steel so that the two markets of
be beneficial in controlling steel price. Based on figure 1, Europe and Eastern Asia (in past, Japan and Now, China)
the variations of this market in recent years is noticeable have significant role in internal iron ore deals [3].
and full of stringent ebb and flow. In this regard, major
steel producers, provide their own strategic raw materials A major share of distributed iron ore is produced
through long-term contracts [2]. by the three companies of Vale (a semi-private company),
Rio Tinto and B.H.P BHP Billiton. Due to the fact that
each ton of crude steel is made by using 1.5 ton of iron
ore, production of crude steel can be introduced as a
demand agent and because provision of iron ore is almost
exclusive, producers provide the market with an output

1
Corresponding author
 MOGHADDAM ET AL.: PREDICTION OF MONTHLY PRICE OF IRON ORE BY USING ARTIFICIAL NEURAL NETWORK

totally in association with instant demand. Studies show

that price of iron ore changes in one direction (4). The
function of global price of iron ore, considering different
factors affecting demand and its supply, is introduced in
the following way [4]:
PI= G(IS,II,IGDP,PS,PO,PAL)
In which PI is price of iron ore, PS denotes steel
production index, PO is oil price, II is index of iron ore
production, PAL is Aluminum price (a substitute product
Figure 2: Structure of a Simple Neural Cell with
for steel) and IGDP is internal gross domestic product
Leading Nutrition [8]
index.
Each input, with suitable weight coefficient (W),
Up to now, different methodologies and methods
is given a weight. Such weights are defined randomly and
such as statistical and artificial intelligence methods have
are corrected during the process of learning with
been suggested for prediction each with its own relative
reduction of network error [9]. The sum of weight input
advantage and disadvantages [5]. In the present paper, by
and bias make up the input of function of stimulus F. In
using artificial neural network, a model of predicting
order to obtain the intended output, one can use a
monthly price of iron ore is suggested.
different transfer function. Tangent Sigmoid, logarithm
Artificial Neural Network sigmoid, linear and positive linear transfer functions are
an example of such functions. In this model, trial and
Artificial neural network, as it is apparent from
error method is used for the two intermediate hidden
their name, are computational networks which are used
layers along with addition of logarithm sigmoid transfer
for simulation of the network of brain neural cells in
function while its output shifts between zero and one. In
living creatures. Current knowledge of biologic scientists
output layer of leading multi-layer networks, positive
about the activity of neural neurons in the past few
linear transfer function was used (figure.4) [9].
decades is the basis of designing such networks. Neural
networks obtain their needed rules through teaching
educational teaching. Neural networks use different
algorithm for learning but without attention to applied
method, learning is generally a repetitive operation during
which a set of educational examples are shown to the
network so as to help it be thoroughly taught [6]. So,
distribution is the most common learning algorithm of
multi-layer neural networks with leading nutrition
invented by Rumel Hurt. This method changes connection Figure 3: Transfer Function of Logarithm Sigmoid [9]
weights by slope reduction and minimizes error function
[7].
A neural network is composed of a number of
neurons in consequent layers. Basically, three layers exist
for such networks: an input layer, one or more middle
layers in addition to existing neurons in each layer
defined based on complexity of the issue through trial-
and-error method. Based on the manner of connection of
existing neurons, neural networks possess different kind Figure 4: Positive Linear Transfer Function
but networks with leading nutrition are investigated here. INPUT AND OUTPUT PARAMETERS
In figure.2, a simple network with leading nutrition of
input R is shown [8]. In order to estimate the price of iron ore with our
intended neural network, 7 measurable parameters of

Indian J.Sci.Res. 7 (1): 1200-1204, 2014

 MOGHADDAM ET AL.: PREDICTION OF MONTHLY PRICE OF IRON ORE BY USING ARTIFICIAL NEURAL NETWORK

highest impact on price of iron ore, were defined as input Some of the data used in network training are shown in
parameters and 1 output parameter was chosen (table.1). the following two tables.
Table 1: Introducing Input Parameter and Target Parameters in Modeling
Type of Parameter Parameter Description Parameter No.
Input A-Month 1
Input B-Price of Oil 2
Input C-Price of Aluminum 3
Input D-Price of Steel 4
Input E-Global GDP Index 5
Input F-Index of Iron Production 6
Input G-Index of Steel Production 7
output H-Price of Iron Ore 8

Table 2: A Sample of Used Data in Network Training

H G F E D C B A Row
12.54 3541.5 961.50 11421.01 310 1,516.73 54.28 Nov-83 1
11.31 3544.25 964.25 11482.42 310 1,027.65 52.58 Oct-84 2
10.51 3556.75 976.75 11761.57 315 2,458.15 27.43 Dec-88 3
14.05 3560.75 980.75 11851.04 330 1,526.00 30.5 Apr-90 4
12.97 3546 1023.3 12946.42 440 1,593.86 35.76 May-96 5
13.82 2197.16 1222.5 14722.75 300 1,421.56 61.6 Feb-03 6
28.11 2447.33 1648.3 15889.70 600 1,731.94 101.1 Jun-05 7
33.45 2834.67 1940.0 16630.02 600 2,461.55 134.81 Aug-06 8
60.8 2361.5 2210.0 17224.85 1,075 3,067.46 249.66 Jul-08 9
132.5 2751.18 3003.2 20001.41 714 1,814.58 198.47 Oct-13 10

Validity In which T is the predicted price of Iron ore in

All of existing applied data in present model
amount to 361 of which 90 percent were used in network
training. Then the remaining 10 percent were test and the
amount of data was calculated as absolute error, relative
error and root mean square error (RMSE). Absolute error
is absolute value of difference from real value which is
predicted by the network and relative error and RMSE are
calculated by the following relationships [10]:
Predicted Value
Relative Error = 100 - 100×
Real Value
N
$/ton, Oi is the measured price of iron ore in $/ton and N
is the number of data series used in testing network
STRUCTURE OF NEURAL NETWORK
In order to define an efficient network structure,
networks with different number of layers, intermediate
neurons and transfer functions were tested the results of
which are registered in table 3 and 4. In comparison with
data of above table, a three-layer feed-forward network
with an intermediate layer of 7 neurons (No.4) and
LOGSIG transfer function along with LM training
1
algorithm can predict the price of iron ore with highest
precision. Figure.5 shows network structure and figure.6
shows the difference of real data of iron ore price with
predicted data presented by our efficient network.

∑ (O i − Ti )2
2
RMSE = i =1

Indian J.Sci.Res. 7 (1): 1200-1204, 2014

 MOGHADDAM ET AL.: PREDICTION OF MONTHLY PRICE OF IRON ORE BY USING ARTIFICIAL NEURAL NETWORK

Table 3: Results of a Network with Different Transfer Functions and Training Algorithm
RMSE Transfer Function Network Structure Training Algorithm No.
0.2472 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-5-1 LM 1
0.4464 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-15-1 LM 2
0.2027 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-8-1 LM 3
0.1885 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-7-1 LM 4
0.19 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-7-1 Scg 5
0.4007 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-7-1 Gd 6
0.6084 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-7-1 Cgf 7
0.2841 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-7-1 Oss 8
0.6959 LOGSIG-LOGSIG - LOGSIG (L-L -L) 7-7-1 Cgb 9
0.6972 TANSIG- TANSIG - TANSIG (T-T -T) 7-7-1 LM 10

Table 4: Networks with Different Structure and Value of Network Test Error
RMSE Ea (m) Er (%) Continued transmission Network structure Learning Algorithm No.
0.2472 0.1589 20.9056 (L-L-L) 7-5-1 LM 1
0.4464 0.4229 55.6381 (L-L-L) 7-15-1 LM 2
0.0260 0.1566 20.5984 (L-L-L) 7-8-1 LM 3
0.1885 0.1190 15.6503 (L-L-L) 7-7-1 LM 4
0.19 0.1334 17.5482 (L-L-L) 7-7-1 Scg 5
0.4007 0.3799 49.9840 (L-L-L) 7-7-1 Gd 6
0.6084 0.5950 78.2754 (L-L-L) 7-7-1 Cgf 7
0.2011 0.1454 19.1247 (L-L-L) 7-7-1 Oss 8
0.6959 0.6841 90 (L-L-L) 7-7-1 Cgb 9
0.6972 0.6855 90.1878 (T-T -T) 7-7-1 LM 10

In table 3 and .4, absolute and relative error

between some of real and predicted values, and some of
the networks tested and evaluated by RMSE for obtaining
an efficient network are provided.
Based on Table 3 and 4, the highest relative and
absolute error in test data were 15.65 and 0.11 percent,
respectively. RMSE for such a network is 0.1885.

Figure 6: Comparison of Real Data with Predicted

Data
Sensitivity Analysis
One of the fundamental actions after modeling is
defining the degree of modeled target sensitivity
Figure 5: Evaluation of Results of Neural Network and compared with input parameters. Usually, the definition
Real Data of effect of input parameters on the aim is accompanied

Indian J.Sci.Res. 7 (1): 1200-1204, 2014

 MOGHADDAM ET AL.: PREDICTION OF MONTHLY PRICE OF IRON ORE BY USING ARTIFICIAL NEURAL NETWORK
with deletion of one of the input parameters so that value
of changes in error of test data are analyzed [7]. If there is
a significant difference between predicted values by the
network and real values (i.e. increase of error) this implies
higher effect of removed parameter on obtained result.
After
fulfillment of the above method on existing network and
data, effectiveness of different parameters was reviewed.
Figure.14.4 shows that index of steel production, index of
GDP and price of steel had the highest effects,
respectively while price of oil and Aluminum has the
lowest effect on price of iron ore.
Figure 7: Analysis of Sensitivity of Input Parameters
Based on Target Function
CONCLUSION
Artificial neural network is a proper way for
solving issues with complicated mechanism and different
influential factors such as prediction of iron ore and
evaluation of associated parameters.
The best network for estimation of the monthly
price of iron ore is a four-layered feed-forward network
with post-propagation training algorithm with 7 neurons
in input layer, 7 neurons in hidden single layer and
1neuron in external layer.
RMSE defined such a network is 0.1885.
The highest relative and absolute in data tests
were 15.65 and 0.11, respectively.
Parameters of steel production index, internal
GDP and price of steel have the highest effect while oil
and aluminum price had the least effect on the price of
irom ore.
Indian J.Sci.Res. 7 (1): 1200-1204, 2014
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