واکنش صنعت آلومینیوم نروژی به تغییر ساختار بازار

This paper analyses how changes in market structure have affected the margins (measured by the Lerner index) of Norwegian aluminium plants. Instead of showing the expected negative trend, due to increased competition internationally, the margins are found to move procyclically around a constant that significantly exceeds zero. Three explanations for this stability in the levels of the margins are identified; a better exploitation of scale economies, increased productivity and product specialisation which allows Norwegian producer prices to increase more rapidly than the international reference price.

For several decades, the aluminium market has been affected by an increase in the degree of competition internationally, i.e. a decline in industry concentration. While the six dominant companies, Alcan (Canada), Alcoa (USA), Alusuisse (Switzerland), Kaiser (USA), Pechiney (France) and Reynolds (USA), accounted for 86% of world capacity in 1955, they accounted for 73% in 1971, 62% in 1979, and 40% in 1993.1 In the early post-war oligopoly setting, prices were set to cover costs plus a margin (Rønning et al., 1986). Over time the industry has changed to be more competitive and less oligopolistic, cf. Reynolds (1986, p. 231) and Froeb and Geweke (1987), and fringe plants have had a significant impact on price determination since the mid-1970s. Today, the price of aluminium on the London Metal Exchange (LME), where aluminium has been traded since 1978, is of major importance to most trade in aluminium. It is common for producers and consumers to enter into long-term contracts specifying quantities, grades and shapes, while the price is related to the LME-price, often at the time of delivery. It is generally assumed that this change in market structure has put a downward pressure on the margins in the aluminium industry. Margins are measured by the Lerner index (Lerner, 1934), i.e. as price minus marginal cost divided by price. The Norwegian aluminium industry, which exports most of its production, has responded to the change in market structure in a number of ways. As a result of plant closures and mergers, the Norwegian aluminium industry has been dominated by two companies since the mid-1980s. These are Elkem Aluminium, which owns two aluminium plants, and Hydro Aluminium, which owns four plants and is a major share-holder in a fifth. This consolidation on the producer side has probably provided the basis for other important strategic actions; over time, both upstream and downstream integration have become increasingly important. The access to alumina, which is the major raw material in this industry, is secured by vertical integration and long-term agreements. And Elkem, which is strategically related to Alcoa, delivers a substantial part of its production to Alcoa’s manufacturing plants, while Hydro has built up an extensive semi-manufacturing system in Europe and North America. The aluminium is primarily sold using long-term contracts. Furthermore, reading their annual reports, it is clear that both companies have adopted strategies to specialise products and increase their productivity. While some of the actions described above are likely to reduce production costs, others, such as the effort to specialise products, may help Norwegian plants to sell at a price above the LME-price, that is at a premium. To what degree these actions have neutralised the negative competition effect on margins is an empirical issue, which we will try to resolve in this paper. Earlier studies of the aluminium industry have in general assumed fixed input coefficients and constant returns to scale. (One exception is Reynolds (1986), who calibrates alternative variable cost functions for the US aluminium industry.) As a consequence, the standard approach when calculating margins involves using a measure of average variable costs, see Froeb and Geweke, 1987 and Domowitz et al., 1987 and Rosenbaum (1989) who all analyse the US aluminium industry using aggregate industry data, and Klette (1990) who uses plant-level panel data to analyse the Norwegian aluminium industry. With the exception of Klette (1990), it is also generally assumed that the aluminium industry produces a homogeneous good with a common price. If the constant returns to scale or homogeneous good assumptions are not valid, the standard way of calculating margins is not correct and may lead to invalid inferences about the magnitude of the margins and their development over time. In this analysis, the cost structure of Norwegian aluminium plants is estimated using a flexible translog cost function approach with no a priori restrictions on scale or substitution elasticities. Plant-level panel data over 1972–1993 are used. The importance of product specialisation for the development in costs and producer prices is examined. Hence, important a priori assumptions on both the cost structure and price in earlier work on the aluminium industry are tested. Plant-specific margins are calculated using observed producer prices and estimates of marginal costs. Section 2 presents the estimated cost function, Section 3 the analysis of the Norwegian producer prices, while Section 4 presents the margins measured by the Lerner index. The main findings are summarised in Section 5.