Demand and Supply of Iron Ore in Australia- myassignmenthelp

Question: Discuss about theDemand and Supply of Iron Ore in Australia. Answer: Today, iron is one of the most important resources in the world. Fundamentally, this is because the mineral is used in many industries as a raw material. Mainly, it is used in manufacturing industries throughout Australia and the rest of the world. Today, the metal is a major export product from the country. For this reason, any changes in its supply or demand significantly affect the performance of other industries in the economy. Over the recent past, the price of the metal has been low. However, according to an article in the Business Insider, its demand, and hence the price of the metal is expected to rise. In the article CBA says demand for Australian iron ore and coking coal will continue to increase the demand for the product is expected to rise and meet its supply. It is imperative to note that the article may be useful to various stakeholders. For instance, the article may attract the interest of manufacturing companies who use iron as a raw material in their production. In the same way, mining corporations may find the information contained in the article as useful. According to the news, the production of steel in the country is expected to rise in the near future. Consequently, this implies that the demand for iron ore is also expected to rise substantially since it is a main ingredient in the production of steel. In addition, the Australian government is also a key stakeholder in the mining industry. For this reason, government mining agents may take keen interest in the information provided in the article. Fundamentally, the information provided in the article can be explained in terms of economic concepts and theory. According to economic theory the demand and supply of a product influences its price. The law of demand postulates that a rise in the price of a good leads to a decline in its demand. On the other hand, the law of supply proposes that a rise in the price of a product brings about an increase in the quantity supplied of that product. However, some goods such as iron have a low price elasticity of supply (Khan, n.d.). For that reason, a significant increase in the price of iron brings about a less than proportionate increase in the quantity of iron ore supplied. From the article, the reader notes that the demand for iron ore in the country is expected to rise in the near future. More precisely, the author predicts that Australian iron ore exports to China will rise substantially (Pakiam, 2017). Notably, exports to China account for approximately 80 percent of the countrys iron ore export production (Business Insider, 2017). In addition, the demand for Australias iron ore is expected to increase again this year (Monfort, 2017). Furthermore, the demand from India is also projected to increase over time. Therefore, as economic theory suggests, the increase in quantity demanded for iron and its related products will create an upward pressure on its price, forcing it to rise. Graph illustrating the effects of increasing in demand on price Source: (Khan, n.d.). As noted earlier, iron ore has a relatively low elasticity of supply. Markedly, iron ore is a natural resource. For this reason, the resource is scarce and its extraction and production has to be done sparingly to avoid depletion (Adam, 2009). Holding this view, the mining of the product is done in moderation. In turn, it makes the supply elasticity of iron ore in the country low (Diss, 2016). A low elasticity of supply implies that the increase in price of iron following an increase in the demand for the product will be accompanied by a small increase in its supply. Therefore, a continued increase in the quantity of the resource demanded amidst a substantially inelastic supply would result in significant increases in the price of the good in the near future. Graph illustrating inelastic PES Source: (Khan, n.d.). By and large, the increase in demand of the commodity will be very beneficial for the Australian economy. Today, proceeds from the mining sector are a major source of government revenue in the country. More specifically, an increase in export demand for the product will raise export revenue for the country. Consequently, it will improve the countrys net exports and, thus, improve the nations balance of payment position. In this regard, it is crucial for the Australian government to initiate marketing strategies and policies that will ensure an increase in foreign demand for the countrys iron ore. Indeed, an increase in the level of demand from both local and international firms would increase the level of government revenue in the country. This way, the Australian economy will experience substantial increases in its GDP and, hence, economic growth. All in all, all factors taken into consideration, the demand and supply of iron the country is plays a significant role in the Australian economy. Through the article, the reader notes that the demand for iron ore is expected to rise in the near future. Largely, the rise in demand is expected to originate from economies such as India, China, and other Asian countries. On the other hand, the supply of the commodity is expected to change only by a small proportion. Mainly, this is because the mineral is a scarce resource. For this reason, a surplus demand over an inelastic supply of the commodity may bring about significant increases in the price of the metal. Imperatively, the increase in demanded for the product will be beneficial for the Australian economy. As such, the country will benefit from high net exports, leading to an improvement in the nations foreign account. Internal demand would also raise government revenue substantially. Hence, the government should instigate measures that ensure an increase in demand and supply of the commodity. Reference List Adam, G. (2009). Economic Theory Supply and Demand. [Online] Science 2.0. Available at: https://www.science20.com/gerhard_adam/blog/economic_theory_%E2%80%93_supply_and_demand [Accessed 20 August 2017]. CBA says demand for Australian iron ore and coking coal will continue to increase. (2017). [Online] Business Insider. Available at: https://www.businessinsider.com/cba-says-demand-for-australian-iron-ore-and-coking-coal-will-continue-to-increase-2017-5?IR=T [Accessed 20 August 2017]. Diss, K. (2016). Iron ore prices explained: What is causing the spike?. [Online] ABC. Available at: https://www.abc.net.au/news/2016-11-15/iron-ore-price-hike-explained/8028298 [Accessed 20 August 2017]. Khan, S. (2017). Law of Demand. [Online] Khan Academy. Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/demand-curve-tutorial/a/law-of-demand [Accessed 20 August 2017]. Khan, S. (2017). Supply, demand, and market equilibrium. [Online] Khan Academy. Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium [Accessed 20 August 2017]. Monfort, J. (2016). Iron Ore Outlook and Implications for the Australian Dollar. [Online] Pound Sterling Live. Available at: https://www.poundsterlinglive.com/aud/6321-the-australian-dollar-and-its-link-to-iron-ore [Accessed 20 August 2017]. Pakiam, R. (2016). China demand for iron ore sets new record high for February [Online] Financial Review. Available at: https://www.afr.com/business/mining/iron-ore/china-demand-for-iron-ore-sets-new-record-high-for-february-20170308-gutwwn [Accessed 20 August 2017]