Abstract:

The study shall show changes have occurred in the supply and demand of coal & iron-

ore in the Australian economy. These are two resources that are very much essential

for Australia. They add significantly to the country’s GDP. But the demand & supply for

these two resources have fallen drastically in China. This induced a greater affect for

the Australian manufacturing organizations. But their supplies have been increasing

considerably in Australia. Ironically, their demands have dropped very much. Since

2013 this trend has begun. It is still continuing. The Council of Financial Regulators

thinks it differently. Firstly, the council thinks this situation will change by 2018.

Secondly, supply will be constant. Thirdly, demand for these two resources by go up.

Table of Contents

1.0 Introduction: 2

1.2 Incomes: 2

1.3 Price of goods: 2

1.4 Price of related goods (Complements & (Substitutes): 3

1.5 Tastes & Preferences: 3

1.6 Income distributions: 3

2.0 Factors affecting the supplies of coal & iron ore: 3

2.1 Price of the said goods: 4

2.2 Prices of other goods: 4

2.3 Price of factor inputs: 4

2.4 Technology: 4

2.5 Government’s taxation policy: 5

3.0 The by and large effects: 5

4.0 Conclusion: 6

5.0 References 6

1.0 Introduction:

Factors affecting the demand for coal & iron ore:

Factors affecting the demand for these resources are given below:

1.2 Incomes:

The demand for these resources depends upon the peoples’ income. It is the

rudimentary factor. Normal goods pose a positive income effect. Inferior goods pose a

negative income effect. As incomes of people rise, demand falls for inferior commodities

(Carboni, 2014).

1.3 Price of goods:

As price of iron- ore and coal rises, their demand falls. It pertains to income effect. As

price of iron- ore and coal falls, their demand falls. Consumption of iron and coal falls as

its price rises.

1.4 Price of related goods (Complements & (Substitutes):

The demand for coal & iron is influenced when prices of other commodities change. The

goods may be substitutes or complements (Kim and Lee, 2014). For example when the

price of iron rises, then price of steel also rises. These are complementary goods.

Again, if the price of petroleum soars high, then biomass sources can be used. These

are substitute commodities.

1.5 Tastes & Preferences:

The demand for coal and iron is ordained by the consumers’ preferences & tastes. Their

demand may vary according to the use of products. Their demand may vary over times

also. Thus, to supply iron and coal, their demand is essential for the suppliers. For

example, railways of many countries used coal to run railway engines. But now they

mostly run on electricity. Thus, consumers’ preferences have changed. India is an

example where coal was used for cooking. But now the consumers use liquefied

petroleum gas for cooking.

1.6 Income distributions:

When the incomes in the society are equally distributed, all have equal purchasing

power (Miron and Alexe, 2014). Then every person in the society can purchase

commodities as per their preferences. The demand for costly commodities drops when

income is equally distributed. People consume more when their income soars. People

consume less when their income is less. But equal income distribution is a rarity in the

society.

2.0 Factors affecting the supplies of coal & iron ore:

Several factors influence the supply of these two resources. These factors are as

follows:

2.1 Price of the said goods:

The supply of goods and their prices are positively related. When price rises, so does

the supply. When the price falls, so does the supply. Greater profits are gotten by

suppliers when prices are exorbitant.

2.2 Prices of other goods:

Every resource has alternative uses. Not only their price but goods also depend on

prices of other commodities. When prices of other good rises, it is profitable for the said

commodity. It means firms alter their limited resources. Thus, firms produce some other

goods. For example if the prices of thermal energy rise, then the use of hydroelectricity

will be more. When the cost of meat rises, non-veg pizza is costly to make. Instead, the

pizza joints can make cheese pizzas. It is because meat is one of the essential

elements of non-veg pizza.

2.3 Price of factor inputs:

The costs of productions rise due to two situations as follows:

a) Firstly, if the cost of an input of production rises.

b) Secondly, if amounts payable to the inputs of production increases.

It means the profitability drops. Thus, the suppliers will slash the prices of goods that

they supply. The supply of goods shall rise if the prices of the production input drop.

Thus, production cost also drops. Subsequently, there is the hike in the profit margins.

For example, if the production cost of iron drops, then more steel can be produced. If

the cost of cement rises, the production of buildings will not be profitable. Thus, fewer

buildings will be made. But the producer will always try to pass on the extra amount to

the consumers.

2.4 Technology:

The supply of commodities is influenced by technological leapfrogging. If the technology

used in the production process is improved or advanced, then the cost of production is

lessened. Thus, the profit margin is hiked (Von Broembsen, 2012). Outdated technology

leads to incur more costs of production. This affects the supply of goods. Thus, the

supply decreases considerably.

2.5 Government’s taxation policy:

There can be rises in the cost of production and taxation (Von Broembsen, 2012). This

induces the reduction in the supply of goods. Because of less margin of profit it

happens. The government can bestow tax concessions or subsidies. It increases the

supply. Thus, firms become more profitable.

3.0 The by and large effects:

Since 201, there have been bulk investments by the Australian investors. It is mainly

due to a potent demand from the Chinese energy sector. At this time, the costs of iron

and coal were too exorbitant. Thus, the investors became greedy. They thought of

making the best use of this situation. The balance of trades was favorable for Australia.

It made the Australian economy flourish. The profile of the resource output is principally

based on the Chinese demand number. There were mere chances of growth in the

domestic market as per consumer demand for iron & coal. The GDP of the country is

mainly dependent on the yields from this sector. Primary concerns are about the growth

in the production of iron and coal. It is because the demands have dropped for coal and

iron. Australia’s resource boom happened due to the Chinese demand. There was a rise

in the production of steel from 489-832 million tons. By the year 2030 this matured

industry of China will decline. It is because they build scraps from older steel. So, the

economy will see a drop in the demand for coal and iron. The nation has made the

export prices lower. It is to maintain the same production level. Thermal energy uses

are degrading. It is because of the Chinese economy’s growth. Secondly, it is due to

environmental effects. Hydro-wind is a substitute for the thermal sector. Hydro-wind’s

increase caused a drop in the demands for the thermal energy. From the year 2006 to

2012, there was an increasing demand for coal. Thus, its consumption increased

considerably in China. But last year (2014), it dropped more than two percent. The

growth of the Indian economy is also the matter of fear. It is because quality coal and

iron is required to widen its infrastructure. South-east Asian nations will see more

growth in their demands. Thus, poor demand in the Chinese economy will offset. It is

thus, a golden opening for exporters in Australia (Financial Review, 2015).

4.0 Conclusion:

Challenges are faced by the Australian economy due to drop in demand of iron and

coal. It is for the decrease in the Chinese growth. The current ROI is poorer for the

country’s resources sector. But economists see a ray of hope from South-east Asian

countries’ demand. They argue the losses of the investors in the resource & mineral

sector.

5.0 References

Carboni, G. (2014). Term Premia Implications of Macroeconomic Regime

Changes. Macroecon. Dynam., pp.1-25.

Financial Review, (2015). Resources perfect storm. [online] Available at:

http://www.afr.com/opinion/australia-has-not-recognised-the-change-in-chinese-

demand-for-iron-ore-and-coal-20150405-1mf00o [Accessed 8 Aug. 2015].

Kim, S. and Lee, J. (2014). INTERNATIONAL MACROECONOMIC

FLUCTUATIONS.Macroecon. Dynam., pp.1-31.

Miron, D. and Alexe, I. (2014). Capital Flows and Income Convergence in the European

Union. A Fresh Perspective in View of the Macroeconomic Imbalance

Procedure. Procedia Economics and Finance, 8, pp.25-34.

Von Broembsen, M. (2012). People want to work, yet most have to labour: Towards

decent work in South African supply chains. Law, Dem. & Dev., 16(1).