Demand and Supply of Coal in Australia

Added on - 03 Mar 2020

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ECONOMICS1Demand and Supply of Coal in AustraliaStudent’s NameCourse IDUniversityDate
ECONOMICS2The 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 markethas been illustrated. Furthermore, the impact of the demand-supply dynamics on the price of coalhas been determined in the study report. In the article, Cain (2017) has clarified that slowingdemand of mining commodity from China can cause the decline in the price of coal in theupcoming year or so. In the meanwhile, bearish growth outlook of Chinese economy may affectthe 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 nearterm.Cain (2017) has admitted that the coal price in Australia has been principally driven bythe demand from China. The government policies of China in infrastructure expenditure,pollution control, and steel production industry have significantly influenced the demand side ofthe fossil fuel. Similarly, due to demand side dynamics, the price of coal has fluctuated. Due tothe 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, spotprices 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 furtherimpact on coal price as the price may slip to as low as US$ 120 a tonne by the end of 2017. Dueto subdue demand of thermal coal, the price of the commodity may trade sideways betweenUS$68 and US$77 a tonne (Cain, 2017).
ECONOMICS3It is important to note that China is one of the major importers of Australian Coal acrossthe globe. Hence, a downfall in the demand for coal in the Chinese market directly impacts thequantity demanded of Coal in the Australian market. For instance, Australia is accounted for 24percent of the total coal requirement in China (Perry, 2016). Hence, a decline for demand of coaldue to the Government policies regarding the environment will directly impact the quantitydemanded for Australian coal. Furthermore, it is important to note that the Carbon Tax Policyimplemented by the Australian Government also enforces the domestic consumers to shift torenewable energy sources (Perry, 2016). For example, the Australian Government has taken aninitiative to provide subsidies to the firms that minimises the emission of carbon caused by theuse 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 coalremains constant due to the improvement of production technology (Bolle, 2011). However, thefall in the quantity demanded influence the market equilibrium resulting in a fall in the aggregateprice of coal in the Australian as well as global market. A diagram has been presented hereinbelow for further explanation:
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