Evaluating the efficiency of the global primary aluminum smelting industry: a data envelopment approach

Abstract

The purpose of this paper is to evaluate the efficiency of the global primary aluminum industry. Efficiency is here taken to be evaluated relative to some benchmark, i.e., the smelter or smelters identified as the most efficient in the data set, thus forming the production frontier. The performance of individual smelters, specifically their technical, allocative, and scale efficiencies are calculated by the means of data envelopment analysis. A proprietary database containing data on inputs used, output, and cost of production for 151 primary aluminum smelters operational globally in 2003 were used in the efficiency estimations. In order to assess and contrast the performance of smelters at different locations, facing dissimilar policy and factor supply environments, smelters are grouped into geographical regions. Furthermore, the technology used will also be evaluated in terms of the above efficiency measures. For each region, measures of potential technical and cost-wise factor savings will be calculated in order to assess specifically in what way production factors improvements can be made and approximately how large these improvements are. The findings indicate that; (a) smelters are overall highly efficient given the scale of operation, (b) many smelters operate with increasing returns to scale and thus we find significant scale inefficiencies, (c) substantial allocative inefficiencies exist within the industry, and (d) there are significant variations in the level of efficiency across regions. The allocative efficiency is particularly low in regions such as China and the Commonwealth of Independent States (CIS) region. Finally, the greatest potential for factor reductions is in labor input in China, the CIS region and in Asia.

DEA performance assessment of Greek listed metallurgical firms

“…There are a plethora of economic studies dealing with efficiency issues in the metallurgical sector, especially in the iron and steel industry; most of these studies use either SFA (Kalirajan and Yong, 1993;Wu, 1995Wu, , 1996Zhang and Zhang, 2001; DEA performance assessment Wei et al, 2007), DEA (Ray and Kim, 1995;Ray et al, 1998;Ma et al, 2002), or linear programming (Gruver and Yu, 1985). A relevant DEA study in the aluminum industry is the work by Blomberg and Jonsson (2011). Published studies dealing with efficiency issues in the metallurgical industry are numerous, but Greek studies are relatively few.…”

“…Even though many studies have investigated efficiency measurement issues of metallurgical firms, mainly iron and steel (see Blomberg and Jonsson (2011) for a relevant survey), these studies have left several areas less addressed.…”