Demand and Supply of Coal in Australia for Energy -myassignmenthelp

Question: Discuss about the Demand and Supply of Coal in Australia for Energy. Answer: Introduction Coal is one of the resources that started being used as a source of energy many years ago (Pearse, Mcknight and Burton, 2013). It was in fact the major source of energy before the introduction of the current sources that the world depend on. It is a major resource used in the steel production industry and a current source of electricity and expected to continue being used in the future (Minerals.org.au, 2017). China is one of the largest steel producer and imports nearly half of its coal form Australia. Generally, despite the current disruption caused by Cyclone Debbie, coal production has been on the rise. This make coal an important commodity of trade for Australia which earns a large proportion of foreign income. The increased demand for coal has stimulated a rise in the production level (Potter, 2015). Thus this paper will make the policy makers understand the contribution of coal to the Australian economic performance and thus implement policies that would facilitate improvement in production and transportation. The mining company will also understand their importance in the international markets (especially in China) and thus strive to maintain a sustained supply throughout. The importing nations shall also understand the reason for the increased shortage and may decide to look for a temporary supply before the Australian supply recovers. Analysis The use and supply of energy in Australia is on a continuous change according to Ball (2016); the economy is aiming to be a leading energy supplier. In the article With Australia's supply disrupted by Cyclone Debbie, coal buyers race elsewhere written by Serapio (2017), the coking coal supply has been exposed to risk by the Cyclone Debbie. Japan and China are the biggest buyers of coal and thus are looking for fresh supply as the deficiency in supply persists. The impacts of this deficiency on the Australian economy is loss of businesses. The disruption of the Australian coal supply has benefited several economies such as Mozambique, United States, Russia and Mongolia because its cargoes are quickly replaced by the exportation of steel from Japan and China to Turkey and India. A shipping source who keeps track of the global coal cargoes pointed out that impact caused on the China Steel industry from the cyclone Debbie was also caused to Indian, Japan and Turkey steel industry. This is because at the previous higher supply of coal, the stocks for these steel industries were running low; however, the stock went up after the disruption of supply; coal and steel are correlated (Wright, 2016). The coking coal prices are expected to rise as the demand exceeds the current supply. The supply was disrupted because there was a landslide caused by Debbie that obstructed the operations of the Australian rail line that connects Queensland to the coal mines. Coal is a product of massive weight and thus the only possible way through which it can be transported is through rail lines. Unless this rail resumes operation sooner, the international market supplied by Australia will experience a shortage of coal and thus prices will rise. The demand for coal is represented by a n inverse relationship. Fig: Inverse relationship between coal demand and price Before the landslide caused by the Cyclone Debby, the level of coal supplied was Q1 and the equilibrium price was P1. The disruption resulted in supply falling to a lower level S2; at this supply level, the price is forced to go up to bring a new equilibrium at price P2. If the rail distraction continues, meaning supply continues becoming inadequate, the price will rise further beyond P2. There are five major mines for coal in Australia with BHP Billiton being the biggest shipper (Schernikau, 2010). Billiton announced on its inability to meet its export commitments since the connection to Queensland's Bowen Basin was disrupted by the so called natural disaster. The NSW coking coal mine run by India's Jindal Steel and Power also announced a disrupted mining operation owing to no stopping rains. The rail line was expected to resume operation in five weeks time as rail operator Aurizon declared that this is the time it would take them to complete the repair. In addition to the five weeks, coal had to been transported to the ports and then to the export destination. This was a long period of supply disruption. This meant a continued struggle for the coal consumers to meet their demand while waiting for the Australian mines to resume operation. According to McHugh (2015), there is an increased external demand for coal and thus the low price for coal is coming to an end. Recommendation The policy makers should ensure that infrastructures are well developed and a continued maintenance; on the other hand, repair should be done at the least time possible since this may prevent the coal suppliers from losing their market to other producers. There should also policy implements to ensure that the mines are operated efficiently so as to improve productivity. The steel manufacturing industry should understand the situation is getting under control and rely temporary on its inventory and importation from other economies. However, they should resume to import from Australia as soon as the supply is resumed. The steel industry should accept that disruption of supply may occur from time to time and thus a need to keep inventory that can be used during such a period. Conclusion The Australian production level for coking coal is rising. Cyclone Debbie natural disaster is responsible for the coal shortages experienced in the year and it explains the rising prices. Australia has the largest proportion of coal exportation and thus an important sector of the economy. The mining industry can therefore be argued to have a great contribution to this economys performance. Coal demand is rising due to the increased production of steel which depend on coal as an important raw material. Coal and steel are complement goods and thus the insufficient supply is hurting the steel industry. Disruption of supply is unavoidable and the companies that usually feel the impact is those that depend on day to day supply without keeping of inventory. Disruption of supply may lead to a loss of market share for the exporting nations. References Ball, A. (2016). Australia Energy Update 2016. [Online] Industry.gov.au. Available at: https://www.industry.gov.au/Office-of-the-Chief-Economist/Publications/Documents/aes/2016-australian-energy-statistics.pdf [Accessed 23 Aug. 2017]. McHugh, B. (2015). Divergent views on the impact on Australia's struggling coal sector as India announces plans to double consumption. [Online] ABC Rural. Available at: https://www.abc.net.au/news/rural/2015-12-10/debate-over-future-of-australian-coal-industry-and-indian-demand/7010772 [Accessed 23 Aug. 2017]. Minerals.org.au. (2017). Characteristics of the Australian Coal Industry. [Online] Available at: https://www.minerals.org.au/resources/coal/characteristics_of_the_australian_coal_industry [Accessed 23 Aug. 2017]. Pearse, G., Mcknight, D. and Burton, B. (2013). Big coal: Australia's dirtiest habit. Sydney, N.S.W.: NewSouth Publishing. Potter, B. (2015). Australia's coal exports set to rise as south-east Asia demand surges. [Online] Financial Review. Available at: https://www.afr.com/business/mining/coal/australias-coal-exports-set-to-rise-as-southeast-asia-demand-surges-20151013-gk7sms [Accessed 23 Aug. 2017]. Schernikau, L. (2010). Economics of the international coal trade: the renaissance of steam coal. Dordrecht, Springer. Serapio, M. (2017). With Australia's supply disrupted by Cyclone Debbie, coal buyers race elsewhere. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/mining-and-resources/with-australias-supply-disrupted-by-cyclone-debbie-coal-buyers-race-elsewhere-20170406-gvfo1f.html [Accessed 23 Aug. 2017]. Wright, P. (2016). Raw Material Prices: Iron Ore, Scrap, Coking Coal Zinc. [Online] Steelmarketupdate.com. Available at: https://www.steelmarketupdate.com/blog/9418-raw-material-prices-iron-ore-scrap-coking-coal-zinc [Accessed 23 Aug. 2017].