HI5003 - Economics for Business assignment

Running Head: ECONOMICS FOR BUSINESS 1
Demand and Supply of Copper in Australia
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ECONOMICS FOR BUSINESS 2
In terms of economics, prices of a commodity have been majorly driven by the demand
and supply side scenario. Increasing demand of a resource has always made a positive impact on
the prices leading towards incline in the commodity prices (Forstater, 2017). In contrast, increase
in the supply of resource in a free market may lead to a decline in prices of the commodity. In
the study, the impact of the rising demand for copper in Australia on the prices of the commodity
has been described providing supporting facts and evidence. In the article, McHugh (2017)
indicates that growing popularity of electric automotive and renewable energy industries have
contributed towards the increasing demand of copper in Australia.
In the meanwhile, the demand side factor has transformed the forecasts for the copper
mining industry as well as the investors in Australia. Due to a surge in demand, the price of the
red metal can see a buoyant upside rally in the future. Precisely, electric vehicles are run on
lithium-ion batteries and copper is one of the main components of the batteries (McHugh, 2017).
Therefore, increasing demand of electric automotive can support the positive price outlook of the
red metal. Basically, the bullish outlook for copper is good news for the metal mining companies
and investors (Giurco & Petrie, 2017).
In the current demand scenario of copper, the economists and metal experts are seemed to
be bullish in red metal. As Australian is the sixth largest producer of copper in the global market,
the rise in demand will certainly make a positive impact on the copper prices. According to John
Fennell, the CEO of the International Copper Association (ICA) Australia, increase in demand
for electric vehicle and renewable energy such as solar energy will play major roles lifting the
copper mining industry in Australia (McHugh, 2017). According to the published reports of ICA,
over two million electric automobiles are in use internationally whereas 750,000 electric cars
were sold on 2016 alone (McHugh, 2017).

ECONOMICS FOR BUSINESS 3
In terms of demand from the renewable energy industry, the need for copper is four times
more in the sector in compared to the coal-powered energy industry (McHugh, 2017). On the
other hand, urbanisation in the developing economies such as China and India will boost the
demand for the red metal as it is the fundamental component of building constructions (Carrasco,
Carrasco & Jara, 2014). Influenced by the bullish market outlook of copper, BHP Billiton has
made an announcement to spend $600 million in upgrading the infrastructure of the copper
mining industry in Australia. The estimated report also shows that by 2030, the annual demand
for copper will increase by around 40 million tonnes fuelling the price of the commodity. Due to
clarity in demand side, copper is currently trading around US$ 6,367 per tonne on the London
Metals Exchange up from US$ 5,633 per tonne in May this year (McHugh, 2017).
According to the economic forecast of the Mineral Council of Australia, the rising price
of copper will become a major issue for the Australian copper consumers in the future.
Additionally, the export of copper from Australia has drastically gone down due to the high level
of consumption in the domestic market. Furthermore, it is expected that the continuous increase
in the demand for copper will lead to lower supply in the upcoming years (Giurco & Petrie,
2017). For instance, the natural resources of copper are limited in number and the current
production of the copper mines will not be sufficient to meet the growing needs of the
consumers. Hence, an undersupply will be faced in the upcoming future that will further lead to
the rise of copper price in the Australian market.
By applying the theory of demand and supply, the demand for copper is increasing at a
tremendous rate that is increasing the price of the commodity. However, if no step in taken in
form of finding new copper resources, the Australian economy will face a shortage of copper
supply in the future that will further impact the market equilibrium (Bochet, İlkılıç, Moulin &