Assume youre the CEO of an Armenian aluminum manufacturer producing aluminum products for the construction industry (Bars,

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Question:

Assume you’re the CEO of an Armenian aluminum manufacturer producing aluminum products for the construction industry (Bars, rods, etc. things you put into the concrete to make it more durable and flexible).

70% sales go to Residential real estate builders, 30% goes to Public Authorities.

It is October 2019. You’re in the middle of the financial budgeting and production planning for 2020.

In parallel your team is also concluding an investment recommendation white paper for your board. Decisions on 7-10 investment expansions are to be taken.

Your current production capacity is 100 tons a month. Your market share is 20%, your (one) domestic competitor’s is 25%. Rest of the market, 55%, are imports.

Average PM for your company over the last couple of years has been 20%. Per 2019: Assets/Equity ratio is 3; Cash/Assets ratio is 5%.

For your domestic competitor average PM has been 20%. Per 2019: Assets/Equity ratio is 2; Cash/Assets ratio is 15%.

Your alumina & iron ore input supplies to produce your products, as well as those of your competitor, are of foreign origin. The production is energy intensive.

Material supply is 40% of your cost base (COGS). Energy is 15%. Logistics and transportation is 20%. Deprecation is 25%.

AC/MC intersection point is 8500 USD/ton.

For the year 2019:

Selling Price per ton has been 12,000USD

AC per ton was 10,000USD

QUESTIONS

Please calculate the PM for the year 2019 (1p)

Is your aluminum product demand-price elastic or inelastic – why? (1+2p)

Is your aluminum product income-price elastic or inelastic (revenue volatility in relation to economic activity) – why? (1+2p)

What type of industry structure (Monopoly, Oligopoly, PC, MonPol Competition) is your company operating in? (1p)

Would you say Global Alumina (input to your aluminum output) mining production is supply price elastic or inelastic – why? (Hint: change in Q produced vs change in price received) (1+2p)

What would you say of your company’s supply cost flexibility – are your costs more or less flexible compared than those of a marketing agency? (1p)

Assume Armenian economy grew 3% in 2018 and is expected to grow 5% in 2019. Global economy is also accelerating and is expected to grow by higher numbers in 2020.

Describe changes in Global S & D lines for Alumina (2p)

If Quantity produced in the global Alumina market go up 3%, how much will the Prices change?Describe expected changes in the Armenian Aluminum products market for 2020.

Assume no investments planned or realized in the previous years by the Armenian aluminum producers.

What will happen to S, D and Pw? (3p)