Business Economics Revolution Global Market

Question: Discuss about the Business Economics for Revolution Global Market. Answer: Introduction In economics, the fundamental of demand and supply have determined the price of a commodity. In the case of determining the global coal pricing, there is no exemption. In the contemporary global industrial scenario, global consumption of coal has fallen to a record low due to weakening Chinese demand and declining oil and gas prices (Goldenberg, 2016). Meanwhile, the lower crude oil prices have played a significant role in falling coal price in the global market. Due to the cheaper affordability of oil, the demand for coal has been shifted away causing the huge slump in the prices. Invariably, due to sluggish demand, the prices of coal fell by 20 percent in 2015 indicating the worries of the coal exporters (Giraud, 2009). Understandably, the report paper reviews the reason of falling coal prices based on supply and demand concept. Additionally, the impact of such massive slump in the coal prices on the coal importing and exporting economies has been described herein for further discu ssion standpoint. Reason for the fall in the price of Coal It can be seen that the price of coal has fallen due to several reasons that impacts the demand and supply of coal in the global market (Kalkuhl, 2015). The primary factors that have led to the fall of coal prices are discussed herein below: Decline of coal use: With new development of fossil fuels and bio-fuels, the use of coal has declined in several major industries (Barradale, 2010). Large industries have shift to electric furnace for higher productivity and environmental sustainability. Coal is Uneconomic: It has been found by most of the coal miners that coal is uneconomic and it has led them to financial losses in the current years. Hence, the producers restrained supply to increase the price that resulted in a negative fall in the demand. It further reduced the price of coal in the international market (Carter, 2007). Environmental issues: Environmental issues are a primary reason for the fall of demand of coal in the market. It can be seen through analysis that coal creates more pollution as compared to petroleum and liquid gas. The increased concerned among the public regarding environment conservation led to fall in the demand of coal (Corley, 2015). It further led to fall in the price of the commodity. Political crackdowns: Political instability and changes in legislations have been other factors impacting the price of coal in the Australian as well as global market (Goldenberg, 2016). Changes in taxation rate and price floor policy of the government have forcefully brought the price of coal down. A demand and supply analysis of coal is presented to understand the primary reason for the fall in the price of the fossil fuel. It can be seen that the demand for coal has fallen in the international market with an increase in the supply that has gradually decreased the price of the commodity in the global market (Hennessy, 2008). A diagrammatic explanation is presented herein below: Figure: Demand and Supply of Coal Source: (Fensom, 2016) It can be seen from the above figure that the demand falls from D to D and the supply increases from S to S. Hence, the price equilibrium shifts from Po to Pe (Fensom, 2016). Therefore, a fall in the price can be seen due to fall in the demand and rise in the supply of coal. The effect of fall of price on the economies Impact on huge coal importing countries such as India Coal has been identified as one of the scare domestic energy resources for economies such as India. As a result of the falling coal prices, Indian industries will be highly benefitted due to changing economies dynamics. Also, the import volumes of coal have been estimated to rise by 33% in the next couple of years as domestic production of coal has lagged significant demand (Thurber and Morse, 2015). Moreover, the power sector of Indian economy will certainly get a massive boost from the falling coal prices as the power projects of companies such as Tata Power, Essar Power and Adani Power are running on imported coal. Correspondingly, due to the cheaper affordability of imported coal, the input costs for Indian metal and cement manufacturing corporations will reduce, sustaining business profitability (Murray and Granzow, 2008). Meanwhile, falling imported coal prices will improve the operating margins of the power as well as manufacturing industries supporting the economic growth of the country (Odell, 2014). Impact on huge coal exporting countries such as Australia The slump in coal prices can create a sustainable economic crisis in Australia as the economy may suffer huge losses in exports. Since the past two decades or so, the Australian economy has remained within an economic bubble though other global economies have shown sluggish growth rate (Fleming, 2010). Currently, the massive slump in coal prices has created significant economies woes to the Australian exports to China; the number one trading partner of the economy has declined by 4% (Fensom, 2016). The coal prices have dropped to below $70 per metric ton due to sluggish demand and lower crude oil prices. From economic standpoint, falling coal prices have contributed to the decline in the Australian mining gross domestic product by 2% from 9% in 2012 to 7%. Under the current pricing of coal has forced coal miners such as BHP to cut jobs. Therefore, the mining employment has faced significant drop down by 29 percent (Fensom, 2016). Meanwhile, the falling coal prices have created fresh economic troubles for coal exporting nations such as Australia. Impact on countries with huge production as well as huge consumption such as China The current demand and supply structure of coal have forced record decline in production in China in the last 14 years frustrating the mining companies operating in the economy (Schernikau, 2010). Under the circumstantial evidence, the falling demand for coal due to lower crude oil prices and sluggish economic growth of China has forced Chinas coal spending and production to fall indicating the sinking scenario of the global coal market. Being the largest coal producer and consumer of the global economy, the drop down of production and consumption of coal has compelled to slump further in price (Liu, Margaritis and Zhang, 2013). According to the reports of the National Bureau of Statistics, coal production in China has declined by 2.5 percent to 3.87 billion metric ton whereas the consumption is also reduced by 2.9 percent (Yang, 2016). The current scenario of coal market has forced the coal mining corporations to reduce their production as they have faced huge losses due to lack of demand and slump in pricing. Notably, the price of coal has fallen by 50% from its international benchmark price to $62 per metric ton. The effect of fall of price on the business or industry The businesses/industries likely to benefit from the fall of coal price The businesses or industries that need coal in their production process are mainly benefited by the fall of coal price. Some of the primary industries include electricity production businesses, steel producing companies, iron-ore companies, and other energy needing companies (Wickham and Reinhart, 2014). In other words, the companies that have furnace that runs on coal are benefited by the fall in the price of coal (Yang, 2016). This is because the fall in the price of coal will lead to the fall in the production price that helps the companies to increase its profitability. Hence, the industries that require coal in the production process are primarily benefited by the fall in the price of coal. The businesses/industries likely to lose out from the fall of coal price Business and industries that produce coals and deals with coal products are likely to lose out from the fall of the coal price (Ã…Å ¾eker, 2012). The coal producers of Australia such as BMA Mines, Anglo Coal Australia Ltd, BHP Billiton, Hunter Valley Energy Coal, Centennial Coal Company Ltd and many more coal producing companies are facing losses due to the fall in the coal prices (Gaspar and Pereira, 2015). This is because the fall in the price leads to fall in the revenue and the production cost remains the same that makes the coal producing companies incur loss due to the fall in the price of coal. Conclusion The existing slump in the price of coal has created a mixed impact on different economies, to say the least. Understandably, the coal importing economies such as India has been massively benefitted from the falling price of the mineral as the power sector of the economy will get a huge boost due to the event. Conversely, the massive exporters of coal such as Australia have suffered colossal hammering as far as economic standpoint is concerned. The mining industry and export markets in Australia have been adversely impacted due to the falling prices of coal. Most of all, the massive producer and consuming countries such as China has seen biggest decline in the production and consumption in the last 14 years. Apparently, the power sector has been primarily benefitted due to cheaper coal pricing whereas the mining industry of coal has faced the beating. References Barradale, M. (2010).Practitioner Perspectives Matter. Berkeley, CA. Carter, L. (2007). Coal: Invoking "the Rule of Reason" in an Energy-Environment Conflict.Science, 198(4314), pp.276-280. Corley, K. (2015). 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