Electricity demand in the iron ore industry: Evidence from Brazil

Abstract

Electricity planning is a key strategic business in the mining industry. Thus, this paper assesses the electricity demand in the Brazilian iron ore industry with an emphasis on electricity prices and the production value chain to address the sector-specific behavioral patterns, using daily data from December 2018 to April 2020. By employing impulse response functions and variance decomposition analysis, the paper shows that electricity demand is primarily determined by internal factors of the ore production rather than exogenous variables, such as the electricity price and weather conditions. Moreover, short and long-run electricity price elasticities are computed, providing further insights into the dynamics of the sector, and indicating that price is inelastic with similar values for both time frames. This suggests from an energy policy perspective that any price movements (taxes) are bound to have a fairly limited effect as they may cause financial turmoil given the long-term characteristic of purchase contracts in the sector.