Economics for Business: Australia's Coal Export Market Analysis

This report provides an economic analysis of Australia's coal export market. It examines the country's significant role as a coal exporter, focusing on the impact of decreasing demand from major importers like China and South Korea. The report applies demand and supply concepts to illustrate how reduced demand affects coal prices and producer surplus. It includes graphical representations of market equilibrium, demand shifts, and the resulting price changes. Furthermore, the report offers policy recommendations, such as implementing free trade agreements, providing government subsidies, and reducing taxes to protect the coal industry and its producers. The conclusion summarizes the challenges and suggests strategies for maintaining Australia's position in the international coal market.

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Executive Summary:
This report has intended to analyse the demand and supply of coal of Australia in
international market. The country is one of the largest producing and exporting countries of
coal all over the world. However, some importing countries as China and Korea are reducing
their consumption of coal for which price of this natural resource in international market have
decreased. This report has analysed this phenomenon with the help of demand and supply
concept of economics.

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Introduction:
In almost every state of Australia, especially in New South Wales, Queensland and
Victoria, coal is mined. Among total amount of coal mined, the country has exported 75%
worldwide, especially in Eastern Asia (Martinus, Sigler, Searle and Tonts 2015). Rest of the
amount is used for electricity generation. The country has remained the largest exporter of
this mining resource in 2015, through exporting 33% of international exports (Halawa et al.
2018). Moreover, Australia has ranked as the fourth largest producer of anthracite by
contributing 6.6% of global production among which, 77% have been exported in other
countries (Industry.gov.au. 2018). Major exporting countries of this concerned country are
Japan, China, Korea, India and Taiwan and so on.
Outline of the article:
Hence, this report has intended to analyse the demand and supply of this natural
resource of Australia in recent years, based on newspaper article. According to the Guardian,
an international newspaper, export market of Australia, reading coal, is going to decline in
near future. Consequently, the price of thermal coal can reduce, which in turn can reduce the
amount of profit of Australia’s coal producing companies (Slezak 2018). According to this
newspaper report, South Korea, Taiwan and Japan together import 30% of the world’s total
exported thermal coal among which, 70% amount are from Australia. According to the
Australian projections, the country may increase its international export of coal by 8.7%
within 2022 (Industry.gov.au. 2018). However, based on the Institute for Energy Economics
and Financial Analysis (IEEFA), this exporting market of coal is going to decrease due to
falling demand from two largest buyers of coal, which are, China and India. Both countries
have forecasted to reduce imports of coal after reaching their optimal level of consumption
(Rosewarne 2016). In addition to this, Japan, Taiwan and South Korea have also decided to

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reduce consumption of coal as they have started to utilise renewable energy instead of coal-
generated one.
Thus, this report has focused to analyse this phenomenon of Australia’s coal
exporting market on international market, based on demand and supply concepts of
microeconomics and its implication on price of coal in Australia. This analysis can help
policymakers of Australia to implement suitable policy to protect price of coal in
international market as well as in domestic one. Hence, before concluding the entire
discussion, this report has tried to provide some recommendations regarding the concerned
industry.
Figure 1: Trend of coal imports of China
Source: (Tradingeconomics.com. 2018)
Article Analysis:
According to the demand law, price and quantity demanded for a product has negative
relationship with each other. This implies that an increase in price of product leads the
quantity demanded for it in opposite direction. For this, the demand curve has possessed
negative slope. On the contrary, decrease in price leads the quantity demanded for this
product to increase further. The supply concept, on the other side, describes a positive
relationship between price and quantity supplied of the product (Rodrigue and Notteboom

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2017). This means, producer increases supply when price of the product increases in the
market while the opposite situation can also occur when price decreases in the market. Hence,
the supply curve has possessed positive slope.
These two economical concepts are true for coal, as well. Hence, by equating demand
and supply curves of this specified mining product, the economy gets market price and
corresponding amount of coal under free market structure (Sorrell 2015). An appropriate
diagram can represent this situation appropriately.
Figure 2: Coal market equilibrium
Source: (created by author)
The above figure has represented equilibrium condition of coal market, while market
demand curve and market supply curve of this specified product has equated with each other.
As a result, the market has received equilibrium amount of price by Pe while the amount of
corresponding output is Qe.
However, due to decreasing demand in world market, the country has faced excess
supply of coal. This phenomenon has led the world price of concerned mining product to
decrease further.

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Figure 3: decreasing demand for coal
Source: (created by author)
The above figure has represented decreasing demand for coal in international market
by shifting the demand curve from D0 to D1 while supply has remained at same amount. This
consequently has led the world price of coal to decrease to reduce by Pe P1 amount in world
market.
Decreasing price of coal in international market has led the producer surplus of
Australia’s coal producers to decrease further (Behboodi et al. 2016). Producer surplus
measures the difference between price at which a producer wants to sell product and existing
market price at which the product is sold.

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Figure 4: Producer surplus of coal
Source: (created by author)
Based on figure 4, it can be said that the initial amount of producer surplus for
Australian coal producer is the area of triangle ACPe. After decreasing price, this amount
becomes the area of triangle ADP1, which is smaller compare to the previous one.
Recommendation:
To protect the coal export market of Australia, the country can establish affective
trade policy, like free trade with importing countries (Mansfield and Reinhardt 2015). This in
turn can both countries to export and import products within them without any barriers and
consequently can increase the demand for this mining resource in those countries again.
In addition to this, the government can provide subsidies to the coal producer of this
country for protecting their self-interest. Decreasing price of coal in international market has
reduced producer surplus for those concerned producer. Hence, to encourage them for further
mining and exporting of this natural resource, subsidy is required (Strambo et al. 2018).
Moreover, through applying fiscal policy, the government can reduce the tax on this
concerned sector for helping this business to sustain in international market.

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Conclusion:
Thus, at the end, the report can conclude that Australia is one of the biggest suppliers
of coal in international market. however due to decreasing demand from some major
customers like China, this industry has its demand in world market and this in turn has led the
market price of this product to decrease further. Moreover, to protect this coal industry and
self-interest of producers, the government can implement various policies, for instance, free
trade policy with coal importing countries and reducing tax on those producers.

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References:
Behboodi, S., Chassin, D.P., Crawford, C. and Djilali, N., 2016. Renewable resources
portfolio optimization in the presence of demand response. Applied Energy, 162, pp.139-148.
Halawa, E., James, G., Shi, X.R., Sari, N.H. and Nepal, R., 2018. The Prospect for an
Australian–Asian Power Grid: A Critical Appraisal. Energies, 11(1), p.200.
Industry.gov.au. 2018. Coal. [online] Available at:
https://www.industry.gov.au/resource/Mining/AustralianMineralCommodities/Pages/
Coal.aspx [Accessed 3 May 2018].
Mansfield, E.D. and Reinhardt, E., 2015. International institutions and the volatility of
international trade. In THE POLITICAL ECONOMY OF INTERNATIONAL TRADE (pp. 65-
96).
Martinus, K., Sigler, T.J., Searle, G. and Tonts, M., 2015. Strategic globalizing centers and
sub-network geometries: A social network analysis of multi-scalar energy
networks. Geoforum, 64, pp.78-89.
Rodrigue, J.P. and Notteboom, T., 2017. Re-assessing port-hinterland relationships in the
context of global commodity chains. In Ports, cities, and global supply chains (pp. 67-82).
Routledge.
Rosewarne, S., 2016. The transnationalisation of the Indian coal economy and the Australian
political economy: The fusion of regimes of accumulation?. Energy Policy, 99, pp.214-223.
Slezak, M. 2018. Energy economics group says export market for Australian coal will
decline. [online] the Guardian. Available at:
https://www.theguardian.com/environment/2017/jul/12/energy-economics-group-says-
export-market-for-australian-coal-will-decline [Accessed 3 May 2018].
Sorrell, S., 2015. Reducing energy demand: A review of issues, challenges and
approaches. Renewable and Sustainable Energy Reviews, 47, pp.74-82.

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Strambo, C., Espinosa, A.C.G., Velasco, A.J.P. and Atteridge, A., 2018. Privileged coal: The
politics of subsidies for coal production in Colombia (No. 2018-01, p. 30). Stockholm
Environment Institute Working Paper.
Tradingeconomics.com. 2018. China Imports of Coal | 1993-2018 | Data | Chart | Calendar |
Forecast. [online] Available at: https://tradingeconomics.com/china/imports-of-coal
[Accessed 3 May 2018].