MACRO AND MICRO ECONOMICS - Assignment Example

?MACRO AND MICRO ECONOMICS of Introduction Copper is a substance that gives a measure of the world’s economy. The global price virtually trebled between the beginning of 2005 and the 2008 summer prior to their fall to $ 3000 in the 2008’s autumn (Geoff, 2012: 3). There has been an apparent price recovery and thus prices of copper are currently more than that of 2007-2008. During their climax, copper was very costly in the global markets to an extent some coins made of copper were more worth than their face value. The following discussion will address the trends in the global markets of copper, their distribution and demand and ways in which the government can influence the price, demand and supply of copper. The Main Economic Trends and Features of the World Copper Market During the Period 2007-11 The United States local production and use of copper has slightly gone high in 2011 to a figure of about 1.1 million tons raising its value to approximately $ 10 billion. Montana, Nevada, New Mexico, Utah and Arizona in the ascending order of production contribute over 99% of the local mine manufacture. Copper that was refined used about 30 mills of brass, 15 mills of rod and 500 foundries and sundry end users. Copper and its alloys were consumed in the building infrastructure where about 45% were used in electronic goods, 23 % consumed in the equipment of transport, 12 % consumed in general products similar to the consumer goods while the industrial ware used about 8% (Ho & Yi, 2008: 538). Between the years 2007-2011 the unproduced import sources from Chile was approximately 42 %, the Canadian was about 33 %, Peru amounted to 13% while Mexico had 6 % . The unwrought copper imports comprised of 83% of the refined copper. There has been an upward trend in the prices of refined copper in the second of half of 2010 with the ending year price according to London Metal exchange reaching a record high of $ 4.44 per every pound of copper (Botchway, 2011: 355). Even though the prices have been fluctuating considerably, the price of copper has remained over $ 4 per every pound throughout August 2011 with a record high price by LME going way up to $ 4.60 per pound in February 2011. In the month of September 2011, in reaction to the crisis regarding the impact on the demand of copper from the increasing debt in the European Union and the slowing development policies in the Chinese republic, the spot price fell acutely to about $ 3.16 per every pound in the course of week 1 which was the least since 2010 July (Gleich, Ayres & Go?Ssling-Reisemann, 2010: 121). The Factors Which Led To Change in the Demand for Copper during 2007-11 However, in September, the global copper research group predicted that the world’s refined demand of copper in 2011 would go beyond the production of refined copper by approximately 200,000 tons which would elongate the deficit production that occurred in 2010 as predicaments of operations and labor unrest inclusive of the strikes in Chile and Indonesia. This would continue to strain the global output of copper mine. The global demand, consumption and production of refined copper was estimated to go high by 1.5% and 2.3% by 2011 (ILOTTMMOTCM, 2008: 14). The production in the U.S mine went up abet in 2011 as restoration of mine restrain instigated at year end 2008 were majorly counterbalanced by a less Ore Grades at a chief producer. The production at the electrolyte refinery went down due to closure of the refinery that was experienced in 2010 that eventually treated trade in anode and to less local output of smelter, the latter leading to a high degree of exports. The Copper mine production in the United States was projected to increase by over 100,000 tons in 2012, fundamentally because of the increasing refurbishment of cut downs. The local consumption of refined copper was close to unvaried in the year 2011 (Geological Survey, 2011: 21). Moreover the boom in the construction sector in China has also granted the consumers an insatiable desire for copper. China has about 1.3 billion populations and quickly developing middle class, have a high demand for automotives, refrigerators, air conditioners and other copper made products in line with infrastructure and building. All these products require copper as a raw material for their production. Besides the demand, the influx of new upgrade projects and construction in during the preparation of the Beijing Olympics contributed to the high destination of the World’s copper production between 2007 and 2011 which accounted for the 30% of the global copper production. China projected to spend about $ 1 trillion on major infrastructure by 2009. This led to the change in demand for copper during the same period (World Economic Situation and Prospects, 2012: 2). Furthermore, the strikes in mines and excess politics in the copper producing economies had a lot to contribute to the change in demand. Strikes by employees in Codelco mines in Chile which is one of the largest underground mines of copper globally reduced the output hence affecting the supply and demand in general. Even though there might be what seem to be a base resource able to fulfill the world’s copper demand and growth, there is doubt in regard to the political climate in countries such as Chile. The latest potential of copper production comes from Africa where there are elevated political risks and uncertainty. The escalating nationalism in the developing regions has an impact on the investment climate which undermines the demand for copper especially in areas such as Congo in Africa with a very potential copper belt that has a lot of government interference that hampers the ultimate demand and supply globally (Global Economic Prospects January 2012: 1). The Factors Influencing the Production and Supply of Copper during the Period 2006-11 Weather- there was plenty of worries in regard to the generation of power owing to the dry spell in the Winter of South America that could come along with more problems in the supply of copper. The copper mines in Chile rely more on the electric power from water and lack of power led to the reduction in the production and subsequent supply of copper. Speculation-the major force that drives the pricing of copper higher is speculation on the market commodities. The shareholders put their money into copper as a way of hedging against the deteriorating value of the U.S dollar. In a condition where the Federal Reserve’s continues to lose their credit and the value of dollar continues to fall then price of cooper will keep on rising which will increase the production and supply copper into the global market some even through the black market (Joseph, 2009: 22). Recession-The consumption of cooper is indeed low in areas outside India and China. Thus the slowness of the economies in the western region and the tremendous sluggishness in the construction in the United States and the European nations alleviate the force on copper prices. In particular the recession experienced in the year 2007 and 2008 had a forceful effect on the production and supply of copper globally. Currency- any signs of rebound in the value of the dollar or incase the shareholders have revived confidence in the security market, that money speculated will exit the copper and other metals then they are likely to move into to safeguard it from the weakening dollar. This occurred in 2007/2008 due to the weakening of the dollar value which affected the production and supply of copper metals around the world (Consensus economy, 2012: 3). Ways in Which Governments Might Influence the Market for Copper Production, And the Price of Copper The government can help in covering for long term pricing contracts or conducting of renegotiation. It is noted that suppliers normally have a long term agreements with consumers to purchase at insulated prices. The government needs to come in and revisit these contracts in relation to the present copper pricing. The government can therefore act as a mediator since the consumers have come to a discovery that they can not merely sit around and watch but they have to renegotiate the prices. There are consumers who do not know precisely what they need and the price at which they can or are willing to part with. This is the point where the government comes in handy in influencing the market for the production of copper and overall copper prices (Otto, 2007: 26). The government can also be handy in terms of prevention of cases of copper smuggling which tends to affect production and pricing of the copper. The smugglers take quite a large volume of copper and offer them below the market price which has a negative impact on the legitimate dealers in the market. Besides, the government can also in strengthening the exchange market which will enhance the long term strategic plan for emerging economies to market their copper without being exploited by the developed economies. They will also reduce the price risks involved in the marketing of copper. In addition, there are people who pilfer copper anywhere and any place; those people who might be known as freelance harvesters of copper. Thus the local and state governments should pass laws and policies that will force buyers of scrap metals to have the real names and addresses of any dealer who has a long trail of scrap to offer to the market. This will make the process of tracking them and their possible sources easier to verify their source of copper (Wright, 2011:41). Bibliography Botchway, F. N 2011, Natural resource investment and Africa's development. Cheltenham [u.a.], Elgar. Consensus economy, 2012, Factors Affecting Commodity Prices, Consensus economy Inc. retrieved online on 3rd December, 2012 from http://www.un.org/en/development/desa/policy/wesp/wesp_current/2012chap2.pdf Geoff R 2012, Markets in Action-Market for Copper, Boston House-tutor2U Geological Survey 2011, Minerals Yearbook 2008 Metals and Minerals. U S Geological Survey. Gleich, A. V., Ayres, R. U., & Go?Ssling-Reisemann, S 2010, Sustainable metals management securing our future - steps towards a closed loop economy. Dordrecht, Springer. http://site.ebrary.com/id/10155944. Global Economic Prospects January 2012, Global Commodity Market Outlook, World Bank. Retrieved online on 3rd December, 2012 from http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1322593305595/8287139-1326374900917/GEP2012A_Commodity_Appendix.pdf Ho, T. S. Y., & Yi, S.-B 2008, The Oxford guide to financial modeling: applications for capital markets, corporate finance, risk management, and financial institutions. Oxford, Oxford University Press. International Labor Organization & Tripartite Technical Meeting on Mines Other Than Coal Mines (ILOTTMMOTCM) 2008, New processes in mines other than coal mines: their effects on employment and training requirements and the need for employment and social policies to cope with these developments. Geneva, International Labor Office Joseph, G 2009, Copper: its trade, manufacture, use, and environmental status. Materials Park, Ohio, ASM International [u.a.]. Otto, J 2007, Mining royalties: a global study of their impact on investors, government, and civil society. Washington, DC, World Bank. World Economic Situation and Prospects 2012, International trade, United Nations publications Retrieved online on 3rd December, 2012 from http://www.consensuseconomics.com/News_and_Articles/Factors_Affecting_Commodity_Prices415.htm Wright, Brian D 2011, The Economics of Grain Price Volatility.? Applied Economic Perspectives and Policy, vol. 33, pp. 32-58. Read More