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Price determination in the electrolytic aluminum industry: the role of electricity prices


Shi, W and Wang, G and Zhao, X and Feng, X and Wu, J, Price determination in the electrolytic aluminum industry: the role of electricity prices, Resources Policy, 59 pp. 274-281. ISSN 0301-4207 (2018) [Refereed Article]

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Copyright 2018 Elsevier Ltd.

DOI: doi:10.1016/j.resourpol.2018.07.014


As a typical energy-intensive industry, the cost of electricity constitutes more than 40% of the total production cost of electrolytic aluminum in the China's electrolytic aluminum industry, suggesting the presence of co-movements between electricity prices and electrolytic aluminum prices. However, in the case of China, the common belief that electricity prices and electrolytic aluminum prices are correlated was not supported by the observed inconsistent frequent changes over the last decade, particularly after the 2008 financial crisis. To account for such inconsistency, this paper explores the incomplete transmission of electricity prices to electrolytic aluminum prices by employing a structural demand-supply model where market power, rotated demand, and quantity-dependent marginal cost in the electrolytic aluminum industry are incorporated. Empirical results show that there is a relatively stronger transmission effect of electricity prices on marginal cost of producing electrolytic aluminum but a much weaker transmission effect on the equilibrium price of electrolytic aluminum. Results from decompositions of electrolytic aluminum prices and marginal cost not only confirm the presence of incomplete price transmission, but also reject two conventional explanations concerning market power and input costs. In addition, a potential theoretical explanation is proposed to facilitate understanding the evolution of electrolytic aluminum prices.

Item Details

Item Type:Refereed Article
Keywords:incomplete price transmission, electricity and electrolytic aluminium prices, structural demand-supply model, cost decomposition
Research Division:Economics
Research Group:Applied economics
Research Field:Transport economics
Objective Division:Defence
Objective Group:Defence
Objective Field:Logistics
UTAS Author:Shi, W (Dr Wenming Shi)
ID Code:127497
Year Published:2018
Web of Science® Times Cited:5
Deposited By:Maritime and Logistics Management
Deposited On:2018-08-01
Last Modified:2019-01-14
Downloads:4 View Download Statistics

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