A Forecasting Methodology For Aluminum Prices

This paper discusses the evolution of a modeling methodology for explaining price behavior in the aluminum industry. Three generations are described, each utilizing as a foundation a microeconomic stages-of-processing approach. The second generation represents an improvement over the initial version, by incorporating more rigorous specifications of energy cost, and market strength (demand-supply balance) as well as endogenous treatment of market strength. International linkages across prices, costs, and markets, are the major extensions in the third generation. The discussion covers theoretical considerations, data problems and limitations, and model specifications. Simulation and forecasting properties of the models are also addressed.