Australian coal mining industry price and equilibrium
Discuss About The Australian Journal Of Agricultural Resource.
Mining is one of the main growth generators of Australian economy under which domestic economy has faced large amount of growth during the last three decade. It produce sufficient amount of employment irrespective of possession of skills by the workers and provides more than 6% to the Gross Domestic Product (GDP) of the state allowing it remain and integral and essential part of the domestic economy (Lawrence & Nehring, 2015). Australia being mineral reach economy faces wide amount of demand of their mining resources in the international market and cost advantage of producing the same has transformed it a mineral source of the world. Among many minerals, Australia is known for their superior quality of coal that produces much amount of trade balance to the domestic economy and good amount of economic growth as well (Simshauser & Nelson, 2015). In this report, coal mining industry of the Australian economy will be judged and in order to do so, supply and demand framework will be utilised. Moreover, it will predict the equilibrium price and quantity utilising the demand and supply framework so as to understand the future prospect of the coal mining industry of the state.
As per the report, price of the Australian mining export has tripled in the international market over the last three decade and in addition to this, investment in the mining sector has increased from 2% of the domestic GDP to 8% as of now (Latimer, 2018). This showcase the sustainability and strength of the Australian mining industry and one of the main source of the same is mining boom in coal mining of the state. Since 2003, Australian mining industry has faced one of its largest coal mining boom and post Global Financial Crisis (GFC), during 2012 mining boom in the coal industry arisen for the second time allowing the production, employment and price of the same to rise (Richter et al., 2018). survey, suggest that, rise in the coal mining boom has increased the real wage rate by 6% and reduced the unemployment by 1.25% over the last two decade (Lenzen et al., 2016).
As it can be seen from the figure 1, Australian coal demand in the world market has increased by a large extend and half of the same is sourced by Asian economies.
Figure 1: Coal demand in domestic market
Explanation of Australian mining industry with supply and demand model
Source: (Rba.gov.au, 2018)
Rise in the supply generally depicts a fall in the price, however, along with rise in the price, there is rise in the demand as well. This can be depicted utilising the elasticity of demand which tends to rise with flatter demand curve. Explanation of the same can be perceived from the analysis of the demand and supply framework of the Australian coal industry.
Figure 2: Coal price in recent years
Source: (Latimer, 2018)
As per the figure 2, it can be seen that during the recent years, coal price has also increased showcasing a rise in demand of the same. The supply and demand equilibrium in the market not yet achieved and the upward trending price as well as the demand showcase that, there is legitimate amount of difference between the coal demand and supply (Thurber & Morse, 2015). In order to understand the same, supply and demand framework can be utilized that will provide better understanding regarding the same (Mendelevitch, 2018). Depending upon the elasticity of the same, it can be seen that price of the demand is highly elastic allowing the change in demand to reflect good amount of change in price.
Supply and demand framework is one of the simple economic model that can explain the factors that affect the supply and demand side of an economy or good or service while forecasting the future trend of the same. Considering the case of the Australian coal mining, it can be seen that the demand and supply equilibrium has not yet achieved. as the figure 3 shows, if it considered that present demand and supply of Australian coal industry is depicted by D and S curves, then if the S-D cut each other at such a point where price is P1 and quantity output is Q1, then market has possibility to move towards better position through shifting of demand curve.
Under the disequilibrium situation of the domestic economy, as the demand rises in the successive periods, demand curve D1 will shift to D2 showcasing a rise in the demand. If the supply remains same, then it will lead to rise in price from P1 to P2 and output from Q1 to Q2. On the other hand, if the elasticity of demand is higher, then, even though there is a rise in supply allowing a shift of the supply curve rightward, price will not fall as much expected (Lawrence & Nehring, 2015).
Prediction of the equilibrium price and quantity
Figure 3: Supply and demand framework
Source: (Created by Author)
Next to this, in order to judge the real market scenario of the Australian coal mining, following figures can be considered that depict the supply and demand of the same. The following figure will aid to understand the demand and supply framework of the Australian coal industry considering both the international domestic market demand and supply as the aggregate demand and supply of the coal industry dividing the same depending upon the region.
Figure 4: Demand (left) & Supply (right) of coal
Source: (Rba.gov.au, 2018)
As it can be seen from the above figure, coal supply demand in the international market has increased by a large extent with a crunch in the 2005, however, at the same time, supply of the same was not adequate allowing a demand supply gap to exist in the market. in addition to this, it has also be seen from the above figure, there is fall in supply of coal during 2002 and since then it increased with the boom in Australian coal mining (Bakker & Shepherd, 2017).
As the major factor of fluctuation of the Australian coal production, it can be seen that the governmental skill development program and rise in the foreign investment has acted well. However, rise in the minimum wage has reduced the same. On the other hand, as the Australian economy has increased its growth during the last three decades domestic production has increased; however, under the rising control in the international coal market through introduction of the Chinese coal, Australian economy is facing much amount of problem to hold its market share (Dobele et al., 2014). As per the future forecast, it can be said that the domestic coal industry of Australian though potential enough however, need restructuring so as to enable itself for the future market shocks. on the other hand it can also be seen that the market of the Australian coal is also shrinking because it has been facing fall in the skilled labour because more people are now interested to attach with the service or with the manufacturing sector that has provided a crippling blow to the domestic mining industry. Under the recent rise in minimum wage has impacted the coal mining labour supply as well that has transformed it from a growth generator to growth holder because during the recent years it has failed to showcase any certain amount of growth. Contrary to this, it can be seen that rise in the tech metals has allowed the Australian economy to face large growth prospect with potential to become the largest producers of the power (Lee, 2017). Coal reserve on the other hand has depleted by a large extend and thus, under stiff competition from the forging firms, Australian coal mining has tough yet potential future because as mentioned in the beginning, it is enjoying much amount of foreign investment and technological upgradation.
Conclusion:
From the above discussion it can be seen that Australian coal market is not in equilibrium and the rise in the price as well as the rise in demand showcase that elasticity of demand is much higher. as per the future prediction of the same, above analysis has showcased that there is potential for the coal mining industry of Australia to revive back, yet its potential is largely dependable upon the factors like minimum wage, growth in the skilled labour force, foreign investment and infrastructural development of the state. The report has found that, disequilibrium in the coal mining market has enhanced the performance of the same because under disequilibrium, there is continuous cost push demand in the market that allows the price to rise and subsequently production as well as the demand for the same. Utilising the high quality coal reservoirs Australia has transformed itself one of the largest producer of the same, yet during present date it faces tough competition from the producers like China in presence of their cost advantage. To conclude, it can be said that though Australian economy has potential to become one of the largest producer and well as exported like eight years before, yet various factors mentioned above holding back it to achieve the same.
Reference:
Bakker, R. M., & Shepherd, D. A. (2017). Pull the plug or take the plunge: Multiple opportunities and the speed of venturing decisions in the Australian mining industry. Academy of Management Journal, 60(1), 130-155.
Dobele, A. R., Westberg, K., Steel, M., & Flowers, K. (2014). An examination of corporate social responsibility implementation and stakeholder engagement: A case study in the Australian mining industry. Business Strategy and the Environment, 23(3), 145-159.
Latimer, C. (2018). Confidence returns for Australian coal miners. The Sydney Morning Herald. Retrieved 28 July 2018, from https://www.smh.com.au/business/the-economy/confidence-returns-for-australian-coal-miners-20180116-p4yyj7.html
Lawrence, K., & Nehring, M. (2015). Market structure differences impacting Australian iron ore and metallurgical coal industries. Minerals, 5(3), 473-487.
Lee, K. H. (2017). Does size matter? Evaluating corporate environmental disclosure in the Australian mining and metal industry: A combined approach of quantity and quality measurement. Business Strategy and the Environment, 26(2), 209-223.
Lenzen, M., McBain, B., Trainer, T., Jütte, S., Rey-Lescure, O., & Huang, J. (2016). Simulating low-carbon electricity supply for Australia. Applied energy, 179, 553-564.
Mendelevitch, R. (2018). Testing supply-side climate policies for the global steam coal market—can they curb coal consumption?. Climatic Change, 1-16.
Rba.gov.au. (2018). [online] Available at: https://rba.gov.au/publications/rdp/2014/pdf/rdp2014-08.pdf [Accessed 28 Jul. 2018].
Richter, P. M., Mendelevitch, R., & Jotzo, F. (2018). Coal taxes as supply-side climate policy: a rationale for major exporters?. Climatic Change, 1-14.
Simshauser, P., & Nelson, T. (2015). Australia’s coal seam gas boom and the LNG entry result. Australian Journal of Agricultural and Resource Economics, 59(4), 602-623.
Thurber, M. C., & Morse, R. K. (Eds.). (2015). The global coal market. Cambridge University Press.
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