Demand and Supply of Coal in Australia-Free-Samples for Students

Question: Discuss about the Demand and Supply of Coal in Australia. Answer: The price of a commodity is largely driven by the supply and demand factors. Precisely, increase in demand of a certain product during constant supply may lead to a surge in the price. On the other hand, shortage in supply of a resource can lead to sudden price hike of a commodity (Gilman, 2016). In the study, the demand and supply scenario of coal in the Australian market has been illustrated. Furthermore, the impact of the demand-supply dynamics on the price of coal has been determined in the study report. In the article, Cain (2017) has clarified that slowing demand of mining commodity from China can cause the decline in the price of coal in the upcoming year or so. In the meanwhile, bearish growth outlook of Chinese economy may affect the demand for coal exported by Australia (Dong, Li and Lin, 2015). As a result of the effect, people associated with the coal mining industry in Australia may face a severe challenge in near term. Cain (2017) has admitted that the coal price in Australia has been principally driven by the demand from China. The government policies of China in infrastructure expenditure, pollution control, and steel production industry have significantly influenced the demand side of the fossil fuel. Similarly, due to demand side dynamics, the price of coal has fluctuated. Due to the recent infrastructure spending cut and moderate property prices by the Chinese government, coal price may face a substantial downside risk. In terms of the current price of coking coal, spot prices of coal have declined from US$ 315 a tonne in April to US$ 150 a tonne in June (Cain, 2017). Considerably, slowing demand from Chinese economy is expected to make a further impact on coal price as the price may slip to as low as US$ 120 a tonne by the end of 2017. Due to subdue demand of thermal coal, the price of the commodity may trade sideways between US$68 and US$77 a tonne (Cain, 2017). It is important to note that China is one of the major importers of Australian Coal across the globe. Hence, a downfall in the demand for coal in the Chinese market directly impacts the quantity demanded of Coal in the Australian market. For instance, Australia is accounted for 24 percent of the total coal requirement in China (Perry, 2016). Hence, a decline for demand of coal due to the Government policies regarding the environment will directly impact the quantity demanded for Australian coal. Furthermore, it is important to note that the Carbon Tax Policy implemented by the Australian Government also enforces the domestic consumers to shift to renewable energy sources (Perry, 2016). For example, the Australian Government has taken an initiative to provide subsidies to the firms that minimises the emission of carbon caused by the use of coal. Hence, the demand for coal is expected to reduce in the Australian market as well. By applying the theory of demand and supply, it can be seen that the supply of coal remains constant due to the improvement of production technology (Bolle, 2011). However, the fall in the quantity demanded influence the market equilibrium resulting in a fall in the aggregate price of coal in the Australian as well as global market. A diagram has been presented herein below for further explanation: Figure: Demand and Supply of Coal Source: (Hattwick, Brown and Sailors, 2014) According to the above diagram, it can be seen that the fall in the global demand and domestic demand for Australian coal leads to a leftward shift in the demand curve from D to D1. However, the supply remains constant in the Australian as well as in the global market at S. Hence, a fall in the quantity consumed can be evident from Q to Q1 that further results in a fall in the price of coal from P to P1. Furthermore, it can be seen that the fall in the price of coal in the global as well as in the Australian market has been leading to the financial losses of the coal producers (Hattwick, Brown and Sailors, 2014). Several news of coal mine shutdown has been published in the recent times. Hence, it is important for the Australian government to take necessary measures in order to safeguard the coal industry of the economy (Perry, 2016). For example, a price flooring policy can be and middlemen can be excluded from the supply chain to maintain a balanced price in the market. According to the outcome of the discussion, demand side worries from the leading coal-importing economies such as China may affect the price of coal in the Australian market. Evidently, the government policies of China towards infrastructure have signalled that government spending in this sector may be reduced. Therefore, the downside risk of coal price may keep intact to slowing demand for the fossil fuel. In the study, it is clear that demand side factor can be termed as the major reason for the decline of the price of coal in Australia. Conclusively, the sluggish demand for coal from China will contribute towards price decline of the commodity. References Bolle, F. (2011). Competition with supply and demand functions.Energy Economics, 23(3), pp.253-277. Cain, A. (2017).Commodity prices likely to be softer, due to China. [online] Financial Review. Available at: https://www.afr.com/news/special-reports/commodity-prices-likely-to-be-softer-due-to-china-20170613-gwpx5w [Accessed Aug. 2017]. Dong, B., Li, X. and Lin, B. (2015). Forecasting Long-Run Coal Price in China: A Shifting Trend Time-Series Approach.Review of Development Economics, 14(3), pp.499-519. Gilman, L. (2016). Economics. 3rd ed. Minneapolis: Lerner Publications. Hattwick, R., Brown, B. and Sailors, J. (2014).Demand, supply, and the market mechanism. 5th ed. Englewood Cliffs, N.J.: Prentice-Hall. Perry, J. (2016).Energy prices. 4th ed. New York: Nova Science Publishers.