Aluminum Industry in 1994: Long Run Supply and Equilibrium Managerial Economics Alp Atakan This material is for the exclusive use in MGEC classes at Koc University. No other use is allowed without my permission. 1 Road Map • • Why is the price of Aluminum so Volatile? • Demand analysis Long-Run Supply Curve – – – – – Difference between short-run and
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Recommendation Although aluminum prices are at relative historic low today, we recommend that Alusaf go ahead with plans to construct the Hillside smelter plant. Based on the following analyses, we project the price of aluminum to rise to approximately $1,590 per ton in 5 years. This price exceeds the minimum required level of $1,416 per ton to yield Alusaf a positive net present value (NPV) on its initial plant investment of $1.6 billion. Analysis of Hillside plant profitability At a minimum
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Alusaf’s Hillside Project • At the beginning of 1994, Alusaf was considering to build the world’s largest smelter (466,000 tpy) at Richard’s Bay in South Africa • A feasibility study was done two years before, but since then the Russian flood had occurred. • Capital cost was projected to be $1.6 billion • Aluminum prices at about $1,110 • Alusaf had long-term contracts that ensured perton alumina and power costs at 41% of aluminum price • Should Alusaf go ahead with the project? How can we use supply-demand
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9 -7 0 4 -4 5 8 DECEMBER 15, 2003 KENNETH S. CORTS JOHN R. WELLS Alusaf Hillside Project At the beginning of 1994, Alusaf was considering building the world’s largest greenfield primary aluminum smelter, a 466,000-ton-per-year facility at Richard’s Bay, a deepwater port on the east coast of South Africa’s province of Kwa-Zulu Natal. Alusaf was the sole primary aluminum producer in South Africa, operating 170,000 tpy of capacity at the existing “Bayside” facility at Richard’s Bay. Alusaf’s
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The decision facing Alusaf Aluminum is whether or not to build a new smelting plant. It is the recommendation of the Petrel Consulting Team that given current market conditions, our predictions of future market conditions, and the return on investment (ROI) requirement, that the plant not be built. The analysis behind this decision was conducted in two discrete pieces: The market price needed to reach a 15% ROI; and a projection of the probability of reaching said price within a 5-year time horizon
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1. Is primary aluminum production an attractive industry? Why or why not? I consider primary aluminum production is not an attractive industry because : a. The product is identical (ie, aluminum), all the companies procure the same resources to make production with same production line and process. The firms only differentiate in terms of controlling and lowering the variable cost in order to make a profit as a price-takers. Pricing is somehow fix in global level as aluminum is openly traded
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112 Innovación, Tema: Actitudes y la satisfacción laboral Primero tienes que volverse un líder, un Cuando se realiza el trabajo con psicólogos sociales y se busca como cambiar patrones de conducta y actitudes, descubren que las características del peruano en términos generales es que se caracteriza por su baja autoestima y de forma colectiva, el peruano se siente siempre menos. Entonces cuando tú le das la importancia a la persona y la valoras y sobre todo cuando es alguien que ellos consideran
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Estimating the Elasticity of Demand for Gasoline Professor Pushan Dutt The graph below shows the evolution of the price of oil (adjusted for inflation) since 1957. Note a couple of sharp jumps and collapses in the price of oil. 1. 2. 3. 1973: : 2.75 % of global production was withheld; Prices in nominal terms jumped from $3.5 a barrel to $10 a barrel 1979: 5.68 % of global production withheld; Prices in nominal terms jumped from $15 to $32 a barrel. 2007: Oil prices increase from $60
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Aluminum Industry in 1994: Long Run Supply and Equilibrium Managerial Economics Alp Atakan This material is for the exclusive use in MGEC classes at Koc University. No other use is allowed without my permission. 1 Road Map • • Why is the price of Aluminum so Volatile? • Demand analysis Long-Run Supply Curve – – – – – Difference between short-run
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The Aluminum Industry in 19941 and Aluminum Smelting in South Africa: Alusaf’s Hillside Project2 1) Is primary aluminum production an attractive industry? Why or why not? Within the framework of the Structure-Conduct-Performance (SCP) model3, the primary aluminum production industry (“the industry”) in 1994 can be described as perfectly competitive. The industry is characterized by a large number of competing firms – the largest of which has only 4.1% of total industry capacity; homogeneous
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