BHP Billiton's Market Strategies: An Economic Analysis

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Economics for Business
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Executive summary
This report is on the market, which determines the company’s strategies in the next five
years, to get an effective report for the future result. This report discusses BHP Billiton
for all the process of the company’s strategies. The industry of company is mining
industry; it discusses the Mining sector or industry in and brief with some key statistics
view in the report. It also discusses market structure is having in the market of all the
mining companies with the economics transaction with the industry. There are also
some factors that will influence the demand and supply of the company’s products and
services to the market. It also discusses the BHP products’ and services are elasticity in
nature; there are many events which impacts the industry, and company with the
different standards of the company’s product and services.
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Table of Contents
Introduction...................................................................................................................... 4
Introduction to the company.............................................................................................5
Overview of the industry...................................................................................................6
The market structure of the industry.................................................................................7
Factors that influence demand for the company’s product(s)..........................................8
Factors that influence the supply of the company’s product(s)........................................9
Elasticity......................................................................................................................... 10
Impacts of an event on the industry/company................................................................11
Conclusion..................................................................................................................... 12
References.....................................................................................................................13
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Introduction
In this report, it discusses the mining industry in the Australian market with the
economics for business involving in the market. It discusses the brief information of the
industry that is mining. It will discuss the BHP Billiton is involves in this industry; the
market has a different industry using to follow in the different things in the company. It
will discuss the market structure, which is having in the industry for the application of the
market. There are many factors which influence the demand and supply of the BHP
Billiton; there are many things to change the demand and supply of the products and
services. It also discusses the elasticity of the industry’s/company’s products and
services. There is having many events that affect the industry/company.
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Introduction to the company
BHP Billiton is the trading entity of the BHP Group Limited; BHP Billiton is the
multinational mining company in the Australian, the BHP Billiton is dealing with the
metals, mining, and petroleum dual-listed public company. It has established 1885, in
2017, the BHP Billiton formed in 2001, through the merger of the Australian Broken Hill
Company, it is the proprietary company, and it becomes the world’s largest mining
company, based on the market capitalisation. BHP Billiton is having the different types
of the business is operating like Minerals Australia, Minerals Americas, Petroleum,
Marketing, Global Locations. There is having the different business to grow more, and
they will increase the working capital in the company’s, and they will work effectively,
and showing the involvement in the industry to get increases in the GDP (BHP, 2019).
The company is also registered in the Australian securities exchange in the Australian
market to grow; they are suitable in the company’s strategy and strength of the
organisation.
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Overview of the industry
In the Mining industry, there is having a specific company is involved in this industry; all
the companies based on the market value continues to show an industry in
repossession. The mining industry grew strongly with different methods and strategy. In
2016-17, is working with effective work in the field of the work. In the market, the mining
industry is also earing with the effective manner, in particular after all deduction like
depreciation, amortisation, earnings before tax is gain to the 38.2% ($23.1b). In the
mining industry is has achieved revenues of 15% in the total market, as per the 2017
report of the different aspects. The organisation is achieving well in the market as
compared to the different industries. In the mining industry, employment has decreased
as on the 2015-16 to 2016-17 that becomes the -3.7% in one year. The sales and
service income increased due to high work and demand in the market. In 2015-16 to
2016-17 is has achieved the difference in the sales income is 13.4% (ABS, 2018).
In 2017, there is having the 34% margins level in all the year, and it became the highest
level of the margins. The Australian Bureau of Statistics (ABS) figures are showing the
contribution of the mining industry in the country’s gross value in 2017-18 that is 8.8 per
cent; this per cent is the good per cent in the involvement of the countries (Hosie, 2018).
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The market structure of the industry
The market structure is the structure, which defines the organisational and other
characteristics of the market. The market structure is giving the effective disruption of
the products price and competition in the market with all the organisations. The market
structure is having differences from the industry of the market.
In the mining industry, there is having the oligopoly market structure in the Australian
market. The oligopoly market structure is the type of the market structure, which defines
there is having minimum numbers of the competitors is having in the market. In the
mining industry, there is having large organisations are participating in the whole of the
market. The market has the most powerful companies is having patents, finance,
physical resources, and that will create the barriers to entry for the new firms (PWC,
2017). In the mining industry, there is having the oldest firm is having a reputation in
front of the government so that they will get the most tenders in the government task.
Characteristics of market structure as per the mining industry
 There is having different strategies or patent to influence by the customer,
and government to attract in the market.
 The mining industry is set the price of the products with occurring buy the
different companies.
 The price of the products is similar to all the competitors’ products and
services.
In the market, the structure is having the efficient for setup the company is requiring the
large numbers of the funds; in this market, there is also requiring the goodwill in the
market. The mining industry is working with the economic, technologies, and legal
factors that influence the different roles of the organisations (Wall Street survivor, 2016).
The market structure is also affecting by the government policy is issued by the
government with the seeing of the market position and requirement of the market.
The market leaders are also deciding the whole part of the organisation, and market
parts, as per the requirements of the organisation function. There is also having
different work standard, and the different market or industry follow structure.
Factors that influence demand for the company’s product(s)
Determinants of demand
In the mining industry, there is having many determinants of demand that will influence
the demand for products and services. there are some determinants of demand is
 Price of the product is one of the most determinants that influence the
demand in the market. The price of the products is low, then the demand will
increase in the market, and in the opposite direction, the price of the product is
high, then the demand will decreases. In the market, there is having some
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specific time that demand will increases in many cases, the price is low or high,
and vice versa. The price of the products is only making the whole thing which is
considered by the market, the price will make the quality, and goodwill of the
organisation will maintain in the market (Els, 2017).
 The second determinant is the price of related goods or services; it
changes the demand for the product and services. The price of the related goods
is high then the price of the goods will increase due to the demand for these
products but will rise slowly. For example, the price of the car is high then the
price of petrol is also high, they all depend upon two things, and vice-versa. In
the market, there is having the many competitors, they are making the different
cost of the working, they will specify the quality of the products and services with
the detail, and after that, they will make the contract with the customer or
government part.
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Factors that influence the supply of the company’s product(s)
Determinants of supply
The determinants of supply are the factors that will change the supply of the products
and services with the different variants of the organisation function. There is some
determinant as discuss in below:
 Taxes and subsidies are the determinants of the supply; they are playing
effective control in the system of the market. The mining industry is cooperating
with the country norms of taxes and subsidies. The government will ensure all
the taxes in the industry, for the mining industry there is having some subsidies
to the industry then the supply will increase, and the organisation will improve
with the selling department to the organisation.
 Technology is the most important determinant of supply; the supply of the
products and services fully based on technology. The technology will improve in
the market or organisation functions then the supply will increase, and the
technology is working with the past technology because of funds requirement
then they will not improve in the supply of the organisation products and services
to the consumers (Amadeo, 2019).
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Elasticity
 The firm BHP Billiton is indulged in the mining industry. The demand for
the products manufactured and supplied by this firm is absolutely inelastic as the
products such as metal including tin, bauxite, brass, iron and other metals form
the base for functioning of many industries (Thebalance, 2019). The machines
and other equipments that all the factories use are made up of these metals
itself. The biggest advantage for the company BHP Billiton, is that the product for
metals never go down because all the other industries use the machineries to
manufacture their products and thus the demand for metals can never go down,
even if they’ re sold at a higher price.
This firm is involved in the extraction of petroleum and other fuels ( Bhp, 2019). The
fuel is one of the most fundamental necessities to run any machinery in any of the
factory for any firm. Additionally, as the firm is also involved in the extraction of
petroleum products, the demand for its product petroleum can also never go down.
So ultimately, this can be said that as the firm BHP Billiton is involved with the
extraction of most important and fundamental metals, so the demand for all its
products is inelastic. It is irrelevant, that at what price the products are sold by the
firm, though it must sell the products at the rate at which the other competitors are
selling the products.
 The first thing that can affect the price elasticity for the concerned product
is the competitors. If the other competitors sell the products at a lower cost than
there might be a fall in demand for the concerned product of the firm BHP Billiton.
For example, if a competitor XYZ company sells the same products; metals and
petroleum at a lower price that the price at which BHP Billiton sells it then the
demand for the concerned firm BHP Billiton’s products might go down. Secondly,
if there comes any substitute product in the market which can replace any of the
products namely tin, bauxite or petroleum. If the substitute product so invented/
discovered has a lower cost and also is affordable for the consumers/ production
firms then the demand for the concerned product the firm BHP Billiton sells might
fall. This is because the production firms would prefer the latest invented product
as its pocket friendly and also serves the same purpose to the firms. In these
both the cases, the demand for the product of the concerned firm are surely to go
down, otherwise the demand would remain inelastic.
Impacts of an event on the industry/company
 The global financial crisis of the year 2008 had a major impact on the
functioning of a lot of firms. The global financial crisis led to the world wide
recession as it was one of the most dangerous and serious financial crisis after
the great depression in 1930’s. The impact of this crisis started from the
mortgage sector and spread into banking & investment. This was due to the
excessive risks that were taken by the banks and investment sector in the USA.
All this led to an adverse economic impact not just in USA but also it turned the
tables for the economy all over the world. The financial crisis led to a fall in
demand for all the products and services, all across the world. The impact it had
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on the BHP Ltd. was that the oil which was exported at a rate of $ 148 per barrel
came down to $ 37 per barrel (Smh, 2009).
 The major impact laid a substantial impact on the demand and supply of
the products of BHP Billiton was the global financial crisis of 2008. As it was a
major fiscal crisis the demand for the products went really low and thus the
supply had to be decreased as the demand for the concerned products went low
in the lack of money in the economy. A number of the production units were
closed all over the world which impacted the concerned firm BHP Ltd. as well (Ft,
2012).
The exchange rate fluctuations are a normal part and parcel of the functioning of the
firm BHP Ltd. as it exports crude oil, petroleum and other metals to a number of
countries. If the currency of the country i.e. Australia in which the firm operates is
stronger against the currency the currency of the firms in the importing countries
then the concerned firm BHP Ltd supplies more. On the other hand, if the currency
of the importing firm is stronger than the supply would be less. This is a normal
routine practice that impacts the functioning of the firm BHP Ltd.
 The effect on the market price and quantity of the global financial crisis
was huge on the firm BHP Ltd. The impact it had on the BHP Ltd. was so huge
that the oil which was exported at a rate of $ 148 per barrel came down to $ 37
per barrel. So, the firm BHP Ltd. had suffered a major loss due to the global
financial crisis around the year 2008 and mid of 2009. However, the firm’s profits
had gradually started going up after 2009.
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Conclusion
This report is written in order to advise the management Board of the company BHP Ltd
to regarding the demand and supply and the determinants of demand and supply for
their product so that the board can make strategies for the future. This report addresses
the issues that the firm had to face during the global recession and the impact this event
had on the demand and supply of the products. Also, the elasticity of demand has been
explained in this report for the concerned firm. The reasons which might lead to a
change in demand for the concerned products such as crude oil, petroleum and metals
have also been addressed in this report.
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