Microeconomics Report: Demand and Supply Analysis of Australian Coal

This report provides a microeconomic analysis of the Australian coal mining industry, focusing on the application of the demand and supply model to predict and explain market movements. The report begins with an introduction to the Australian mining sector, highlighting its significance to the national economy and its role in generating employment and GDP. It then examines the coal mining industry specifically, noting the significant growth and investment in the sector over the past few decades, including the impact of mining booms and global financial crises. The core of the report utilizes the supply and demand framework to assess the industry, including graphical representations to illustrate shifts in demand and supply curves, and the prediction of equilibrium prices and quantities. Factors influencing supply and demand are discussed, such as governmental skill development programs, foreign investment, minimum wage, and international market dynamics, particularly the influence of Chinese coal production. The report concludes with a forecast for the future of the Australian coal industry, acknowledging both its potential and the challenges it faces, emphasizing the importance of factors like skilled labor, foreign investment, and infrastructure development. The analysis underscores the market disequilibrium and the role of these factors in shaping the industry's performance and future prospects. The report also references several sources to support the analysis.

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Table of Contents
Introduction:...............................................................................................................................2
Australian coal mining industry price and equilibrium:............................................................2
Explanation of Australian mining industry with supply and demand model:............................4
Prediction of the equilibrium price and quantity:......................................................................6
Reference:..................................................................................................................................9

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Introduction:
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.
Australian coal mining industry price and equilibrium:
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

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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
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.

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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.
Explanation of Australian mining industry with supply and demand model:
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

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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).
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.

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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).
Prediction of the equilibrium price and quantity:
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

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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

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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.

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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:
http://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.

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Thurber, M. C., & Morse, R. K. (Eds.). (2015). The global coal market. Cambridge
University Press.