The Demand for Metal in China - Essay Example

An Economic Analysis of Aluminium Price Fluctuations The economic analysis in this paper is concerned with the monthly spot price of LME for aluminium in US dollars per a tonne of aluminium in the period lying between June of 2008 and June of 2014. The figure is showing the changes that have taken place in the aluminum prices in the 6 year period. It is evident that the price has fluctuated entirely in that given period of time. For instance, between the month of July 2008 and February 2009, it did fall by 57% and in the month of August alone it achieved a 16% rise. There are several reasons as to why the price of aluminium has seen such tremendous changes and or rather evident fluctuations. China’s economic growth during the period of the fluctuations in the prices of aluminium affected the price of the metal. Secondly, there was a consolidation of the steel industry affecting the trend of the prices in the metal across the globe. More so, global warming and carbon sequestration must also have had a hand in the fluctuations in the aluminium prices. Finally, the rising costs of production and the loss of value of the US dollar must played a role in the changes in price of the same product. Historically, the prices of metals across the board always had a positive or an upward trend whereas the dollar kept at a constant for long period of time. The duration and amplitude of price fluctuations in the case in question must have been as a result of numerous change in the economic strength of the metal market in general (ASWATHANARAYANA,2012). Considerations in supply and demand of aluminium and unexpected events like natural disasters and accidents do influence the variations in the price of the aluminium during that given period of time. The global events in question are like recessions, economic growth and inflation do affect or influence the trend in the prices of the aluminium. The demand for metal in China was a result of the infrastructural expansion in the country. I think, in August 2008, the increase in price of aluminum was a result of the increased demand in the aluminum metal due to the intensive development in china ta that specific time. The inflation and recession of 2008 that affected most countries in the world must have been reasons for the fluctuations in aluminium prices. Minerals have a high tendency of losing when it comes to changes in the economic climate of the market and the general market. Inflation made the demand for the aluminium go down leading to the fluctuation in price during that period of June 2008 to June 2014 ( GILBERT,2010). More so, there are chances that currency exchange during that period did fluctuate at a good rate making it viable for the aluminium prices to fall or keep fluctuating too with the changes in the exchange rate of the dollar. The dollar losing its value in the currency market can also be a causal effect on the aluminium price fluctuations. More so, interest rates charged on items and global or rather consumptive patterns of aluminium in the market where it was dwelling so well might have led to the fluctuation. That means that the rate of consumption or need for aluminium might have fallen due to some reasons like changes in economic viability of the mineral leading to the reduced prices of aluminium during that period. Speculative activities in the mining of aluminium and the deteriorated production methods might have been a reason for the fall in the prices of the commodity. This means that the extraction of aluminium might have delayed or gone down making the market lose trust in the companies that are making the extractions, hence the reduction in prices. This might have been brought about by poor processing or substandard production of the aluminium during the recession period, lowering the standards o the commodity. It is automatic that any such changes in quality of an item will automatically lead to a reduction or rather a fluctuation in the price of the same product. Such factors will obviously negatively affect the price of any mineral and compromise the viability of all other projects of the company or companies producing the same or similar minerals in that specific or given time period (GILBERT,2010). Other reasons that might also have affected the price of the aluminium is the trend in terms of politics and economy internationally. A good political environment is an assurance of peace and therefore, market for the minerals or any other product. In the case where there is no good political environment, it is obvious that the negative political environment will come with a negative connotation in the mineral markets. More so, a positive economic structure internationally, will lead to adequacy in demand and market for the aluminium making sure that there is market for the product. The presence of the market for the same will lead to rise in prices and not just fluctuations like it was the case in the above scenario (ASWATHANARAYANA,2012) There is also a possibility of market manipulation and supply and demand. The manipulation must have been caused by the big players in the aluminium industry. This might have negatively pushed the prices of the metal during that given period in time. They play a massive role in determining the prices of the metals like aluminium to their own selfish gain at time or with other reasons best known to them. The trend in figure one might also have been affected by the trend that the big players took in the determination of the price for aluminium in the market. There is also a possibility that aluminium prices are determined by Wall street brokers. This makes it evident that any changes in the value of the dollar will automatically lead to a change in the prices of the aluminium for a given period of time. Prices of metals are always affected by some factors that are external to the industry or rather the metal industry. Changes in the metal economies definitely or automatically affect the prices of the same metals in the market. There are situations that do affect the prices of the same. They include a possibility of limitations on exports of the metal, and for this case aluminium. China being a big importer of aluminium might have also led to the fluctuation in price because of the economic changes and the difference in trend in the economic viability of the country. During the period in the case above, the world also experienced some global warming. This led to increased prices of fuel leading to high production and transportation costs for aluminium (KRUGMAN,2009). Another reason for the trendy fluctuations in the prices of the metal is the changing value of the US dollar. During the period in question, the value of the dollar has been declining at an unsteady rate. This has greatly impacted on the shape of the curve in figure 1. Any changes in the value of the American dollar saw an equal measure change in the market trend of and price of aluminium and other metals too (GILBERT,2010). In 2008, there prices reached there maximum, according to figure 1, because of the value of the dollar at that specific time. The dollar was at its peak and was doing well in the currency market affecting the prices of all commodities in the market, aluminum included. The same year was before the start of the great economic recession. The economic viability of aluminum was at the climax and chances of achieving high prices in the aluminium were high. This made it possible for the metal to get to the highest of prices in the market before a steady downward trend took effect (CULTURAL HUMAN RESOURCES COUNCIL, & CONFERENCE BOARD OF CANADA, 2009)). The fall in the prices between 2008 and 2009 was as a result of the severe economic recession experienced at that time world over. After 2009, the prices began picking slightly, and an upward trend was felt as the economic viability improved. This led to an improvement in the aluminium prices because of the slow increase in demand of the same. In the year 2010, the changes were so unpredictable and untenable given there was an upward and downward change in the price of aluminium as illustrated in figure 1. This is the point in time where several factors, both positive and negative kept intertwining leading to the downward and upward fluctuation in the price of the aluminium (BLOMBERG, J., & HELLMEER, 2000). The price again short in 2011 before getting a challenging, steady downward trend until June of the year 2014. This saw people delaying in aluminum production and sale suffer many loses within a long period of time. A period between 2011 and June 2014. When it came to august of the same year, there was an increase in the price of the Aluminium, meaning that the economic viability of the metal was highly enhanced and the demand positively changed making the metal price go high in that month (DAVIES, FOXALL & PALLISTER, 2002). List of references ASWATHANARAYANA, U. (2012). Natural resources: technology, economics and policy. Boca Raton, CRC Press, Taylor & Francis Group. BLOMBERG, J., & HELLMEER, S. (2000). Short-run demand and supply elasticities in the West European market for secondary aluminium. Resources Policy, 26(1), 39-50. DAVIES, J., FOXALL, G. R., & PALLISTER, J. (2002). Beyond the intention–behaviour mythology an integrated model of recycling. Marketing theory, 2(1), 29-113. CULTURAL HUMAN RESOURCES COUNCIL, & CONFERENCE BOARD OF CANADA. (2009). The effect of the global economic recession on Canadas creative economy in 2009 final report. Ottawa, Ont, Cultural Human Resources Council. GILBERT, C. L. (2010). Speculative influences on commodity futures prices 2006-2008. Geneva, United nations conference on trade and development (UNCTAD). KRUGMAN, P. R. (2009). The return of depression economics and the crisis of 2008. New York, W.W. Norton. Read More