Aluminum Prices Can’t Keep Up With Energy Costs, Driving Wave of Closures

This article illustrates the long-run effects of an increase in input prices AND how the popular media misuse economic terms (WSJ, Jan 2022).

1. "Rising power prices are causing a shakeout in the aluminum sector, forcing the closure of some plants and tightening global supplies." Aluminum production requires huge amounts of electricity. As the price of electricity increases, the supply of aluminum decreases and, therefore, the price of electricity decreases and the equilibrium quantity decreases. One way that smelters reduce the quantity produced in the long run is to close plants. The increase in the price of electricity reduces profitability below the normal rate, even after the price of aluminum increases.
2. "Based on known closures, Morgan Stanley estimates aluminum supply could fall 1 million tons short of demand in 2022." What Morgan Stanley calls "supply" and "demand" is better called "quantity supplied" and "quantity demanded".