Abstract for: Case study: Scenario and Risk Analysis in the Pulp Industry using System Dynamics and Monte Carlo Simulation
Similarly to those of other commodities, pulp prices are highly volatile. In such a capital intensive industry, with high operational risk, proper assessment of future possible scenarios for pulp prices is fundamental for investors' financial planning. Building excessive capacity can be dramatically harmful for the entire industry. This paper describes a case study where a system dynamics model and flight simulator were used to generate expected scenarios for pulp prices as a tool to support investment decisions. More specifically, a Monte Carlo simulation running on top of the SD model provides a range of expected values for prices in different time horizons with pre-defined confidence levels. Even though the model and specific results cannot be fully disclosed, the paper describes a methodology and techniques which can be applied in several similar problems involving risk analysis and system dynamics applications.