Most of the industry structure is formed around so-called “market rules”. These are common decision-making policies and principles deeply embedded in the industry. Participants' mental models of the business mold these rules. The rules and the structure cover the demand chain from the producers to brokers and to end customers. Market rules are seldom optimal. Occasionally, they are not even rational -- especially when profitability is a concern. But still they follow accurate, specific logic.

The most important parts of these structures are the cause/effect chains that form closed feedback loops. In these chains, the effect cascades back to the original cause itself. In such cases, the market characteristics are both driving and being driven – because they are completely interrelated.

The structure follows the real industry practices in every aspect. No economic or other theories are included in the structure, unless it can be solidly proven that also the real market and the actors in the market behave accordingly.

Market Forecast

Common methods used in forecasting are typically applicable for specific needs only. The majority of these methods rely on two key principles:

The mathematical tools are applied to fit the theories with the historical data. The measure of the accuracy of the forecasting tool is its capability to reproduce the historical data.

These methods have two common shortcomings:

• Typically they lack the dynamic features of the market place and consequently are not capable of predicting market turning points
• The methods are not capable of providing an understanding how the industry really works

The latest vivid example of the shortcomings is the incapability to forecast the turning points in the US economy. As often is the case, the market downturn (and upturn) comes as a big surprise.

For the business leaders the shortcomings explained above have serious implications because the most critical issues in the decision-making lies indeed in knowing the turning points and understanding how the industry works.

Based on the feedback from our customers, we have been so far successful in tackling the previously mentioned shortcomings. We are able to provide prediction of market turning points for up to 2 years ahead, and also a fact-based, clear understanding of how the industry works in reality.

Systems Dynamics draws its knowledge from:

• Experience and expertise of the individuals who have been in the business for a long time
• Mathematics in control and system theories
• Historical data

This knowledge is compressed into the industry structure that is the foundation for both the forecast and the understanding of the market behavior.

Industry Dynamics
The Following Variables Are Typically Included in the Market Forecast:

• Market Price
• Sales / Order Inflow
• Shipments / Deliveries
• Production / Operating / Utilization Rate
• Orderstock Level
• Inventory Levels (Producer, Customer, Broker)
• Export / Import

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Chemical Pulp Market	Pulp Market
October 2003 NBSK Pulp Price Forecast	May 2002 NBSK Pulp Price Forecast
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RISI-Forecast Review
Actual Price and RISI forecasts