Lme Aluminum

In: Business and Management

Submitted By cbuscpa
Words 334
Pages 2
Alusaf Hillside Project

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 in the financial market. b. Intensive rivalry and perfect competition. Since the collapse of the Soviet Union and Russia and the other former Soviet states surged the supply and flooded world markets while having price remains historical low in 1993.

2. At the market price of $1,110 per ton, given the supply curve you have derived, how much would be supplied under the assumption that all plants are profit maximizers?

If all plants are profit maximizers, the capacity will be landed at where average variable cost = price, ie, $1,110. From the industry 1993 supply curve, the capacity at 19,412 thousands tpy when variable cost close to $1,110 (to be exact at $1,108.02).

3. At what rate do you expect primary aluminum demand to grow over the coming years (note that primary aluminum demand is total demand less scrap production)? What do you expect the price of aluminum to be in 5 years from 1993?
From the industry supply curve, the capacity reached 19,412 thousands tpy when aluminum price at $1,110. In the perfect competition market, the demand will be the primary production capacity minus scrap production, ie : 19,412 – 950 (idled production from the Western producers) thousand tpy = 18,462 thousands tpy.

With reference to CAGR, the demand in 5 years later will be :
(1.02)5 x 18,462 = 20,384 thousands tpy

The demand in 10…...

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