The report will deal with the mining industry and Kidman Resources is considered here for the analysis. This report will give a brief about the market structure of the industry and will determine the demand and supply of the company. This report will also analyze the impact of a recent event on the industry.
1.1 Introduction to the company
Kidman Resources is a mining industry, which produces Lithium Ion batteries. According to the annual report, their current project will last about 47 years. The revenue they will earn for this project is expected about 33.5 billion USD. The EBITDA of this project is expected to be about 21.2 billion USD (Kidmanresources.com.au, 2019). Kidman Resources will integrate capital about 755 million USD which also includes the contingency. According to the annual report the internal rate of return will be 26.6%. They expect a payback from the project is near about 3 years. The expected price of LIOH for the first five year is 14.074 USD per ton. The expected average price of the LIOH over the lifetime of the project is 15.115 USD (Kidmanresources.com.au, 2019).
1.2 Background of the industry
Mining industry contributes about 8% to the total GDP of Australia and contributes about 60% of export of Australia. Australia earned about $174 billion from the export of energy resources commodity. Australia ranked top in the Export of energy resources commodities in the world. About 200,000 people are directly employed in the mining industry and many individual are getting benefits indirectly from the mining industry. Australian government earned about $25 billion taxes and royalties from the mining industry. 30% of the exports are only the energy resources commodity. The value of this export is about $47billion. Australia also agreed free trade recently for the resource sector (Salam, 2017).
2. Market for the good
2.1 Factors influence the market demand
Demand of any commodity is mainly the quantity that an individual is willing to buy. There are different factors that are influencing the demand for the commodity. The demand for the commodity depends on the various factors. Price of the commodity is a main factor of demand. If the price of the commodity is more, then, the quantity demanded for the commodity will be lower. If the price the commodity is lesser, then, the quantity demanded for the commodity will be more. In this context if the price of the lithium is higher, then the demand for the lithium will be lower. Similarly, if the price of the lithium is lower, then the demand for the lithium will be higher. The demand for a commodity also depends on the price of the close substitutes if the price of the close substitutes is lower and the price of the lithium is higher than the demand for the lithium will be lower. Similarly, if the price of the close products that can be a substitute is higher than the price of lithium then the demand for the lithium will be higher. The quantity demand for a commodity also depends on the availability of the product in the country if the availability of the commodity is more, then the demand of that commodity will be higher (Salam, 2017). The availability of lithium is higher in Australia hence, the demand for the lithium is higher in Australia. Australia also exports lithium outside of the country. If the availability of Lithium was lower in the country, then the demand will be slightly lower. Therefore these are the factors that determines the demand of the lithium in the country (Salam, 2017).
2.2 Factors that determines the supply of the product
Supply of a thing is determined by the willingness of the producer to produce at a given price. Many factors give an influence in the supply of a product. The main factor that determines the supply of a product is the commodity price. If commodity price is more, then the supply of the product will be higher. And if the commodity price is lower, then the supply of the commodity will be lower. That is commodity price and the supply is directly proportional to each other. In this context if the price of the lithium is higher, then the supply of the lithium will be higher and if the price of the lithium is lower, then the supply of the lithium will be lower. The factors that influence the supply is expected price (Sarkar, Sarkar and Bharadwaj, 2018). If the expectation of the producer is that if the future price of lithium will rise, then the producer will uplift its production. If the expectation of the producer is that if the future price of the lithium price will decrease then the producer will decrease its rate of production. Supply of a product is also influenced by the availability of the product if the availability of the product is higher, then the supply of the product will also be higher. If the availability of the product is lesser in the country, then the supply of the commodity will also be lesser. In this country, the availability of lithium is higher; therefore, the supply of lithium is higher for this country.
The factor that also determines the supply of the lithium is input cost. If the input cost that is if the labor cost or other technological cost rises for the industry, then the supply of the commodity also decreases. If the cost of production of the commodity decreases, then the supply of the commodity increases. Therefore, production cost and the supply of the commodity is inversely proportional to each other (Tai et al 2017). These factors determine the supply of the commodity.
Elasticity is the responsiveness of an individual due to a change in the factors that are responsible for the production of a commodity. Elasticity of a product can be of two types one is demand side elasticity and another is supply side elasticity. Demand side elasticity is the responsiveness of a consumer due to a price change of the commodity. Supply side elasticity is the responsiveness of the producer due to a change in the factors of production of the commodity. Here in this context the demand elasticity for the lithium is inelastic because with the change in the price of the commodity the consumers are less responsiveness. That is why the demand elasticity is inelastic. The supply side elasticity is also inelastic because the producers are also less responsiveness with the change in the cost of production because the demand for the product is higher therefore the producer will get the price if they raise the price of their product (Mining-technology.com, 2019). Therefore, the elasticity of supply is inelastic for the lithium industry.
Figure: 1: The demand and supply graph
3. Market structure
In economics, there are four types of market oligopoly, monopolistic competition, monopoly and perfect competition. Each of the market structure has their own set of assumption that differentiates each market from the other market. The monopoly market has only one seller and many consumers. There are also many barriers for other firms to take entry into the market. The producers of the monopoly market can also maximize their profit. The assumption for the oligopoly market is that the number of sellers is few and the number of buyers is many. There are also many barriers to take entry into the market. The assumption of the monopolistic competition is there are few buyers and sellers. There are no barriers for other companies to take entry into the market and the products are slightly different from each other that are the consumer can choose their product according to their choice. The assumption of the perfect competition is the numbers of buyers and sellers are many. The product for the perfect competition is homogenous and the sellers have perfect knowledge about their rival (Zubi et al. 2018). Perfectly competitive market also has no barrier for other companies to take entry into the market. The lithium ion industry is a monopolistic competition structured market. The numbers of sellers are many and the number of buyers is many. There is no barrier for other companies to; take entry into the market because to take entry into the market the companies need to take necessary permission from the government of Australia and from the existing firm. This is not a tough matter for other companies to take entry into the market. Kidman resources ltd also can maximize their profit by increasing the commodity price. According to (Salam, 2017), the market for lithium is monopolistic competition because there are many sellers and many buyers and there are barriers for other companies to take entry into the market. Hence, the market cannot be a perfect competition because the customer can choose his or her own product instead of another product. As there is no barrier for other companies to take entry into the market, hence it cannot be a oligopoly or monopoly. There is also an existence of perfect competition in the mining industry. For the coal industry there are many sellers, there also exist many buyers, and the product of the coal industry is homogenous. There is also no barrier for other industries to take entry into the market. The new companies just have to take permission from the government of Australia. Hence, all the assumption of the perfect competition matches with the coal industry (Archive.unu.edu, 2019). Hence, the market for the coal industry is perfectly competitive. Most of the companies in Australia get monopoly-structured market in the mining industry. That is there are many barriers to take entry into the market of the mining industry. Hence, the Kidman Resources Ltd is getting a monopoly-structured market in the lithium ion industry. The firm also can maximize its profit by increasing the price of the commodity. As the demand is inelastic, the customers will also be less responsive with the change in the price (Salam, 2017).
4. Market analysis
Kidsman research Ltd mainly produces lithium ion battery. The company is currently handling a project, which will last for 47 years. The company is also acquiring a good amount of revenue from the project.
4.1 Impact of an event
The demand for the lithium ion industry is growing continuously. The lithium ion battery is running at a boom stage. Hence, the researchers and many environmentalists are pushing the company to recycle the battery. This recycling process is lowering the cost of production of the companies. This also raises the profit margin of the companies. The collection and the recycling rate of Lithium ion battery is increasing. This year the collection rate has been around 2%. The use of electric vehicle is rapidly growing in Australia. Hence, the demand of the lithium ion battery is also increasing. As they are recycling the battery, the supply of the battery is also increasing. Battery recycling mainly focuses on the recovery of high valued materials such as lithium, cobalt, copper and aluminum (Inderoose.be, 2019). Currently they are using the recycling process as they are extracting those components specifically by various types of chemical process. The company is using various types of chemical components are used in the positive terminals of the battery such as nickel cobalt aluminum oxide, lithium manganese oxide, and cobalt oxide and for the negative terminals they are using lithium tantalite, tin cobalt alloy, graphite and many other components. That causes a problem as the extraction process is for only one element then the other element can cause problem by doing side reaction with the components, which can decrease the level of efficiency. The lithium ion battery can also give a value added benefit to the resource production. If the lithium of a lithium ion battery can be extracted and can be converted into the carbonate salt, this can give an extra amount of resource of the carbonate. The other components can also be extracted from the battery in the similar way. Therefore, the recycling of the lithium ion battery will help the lithium factories as well as the other subordinate industries. As the number of electric vehicle is increasing, the demand of the lithium ion battery is also increasing. The recycling takes less time than to produce new batteries. Hence using the recycling process the supply of the lithium ion battery is also increasing. As both the demand and supply is increasing the demand and supply meets at a new equilibrium price level. The demand and supply both are increasing the so the price of the product is also increasing. The cost of production of battery is also decreasing as they are using the recycling process. Therefore, an increase in the price is increasing the profit level of the company. Hence, the recycling process is profitable for the company. These are the impacts of an event or the impact of using the recycling process. The recycling process is not only profitable for the lithium ion industry it also giving profit to other industries like carbonate.
This report deals with the mining industry. Kidman resources Ltd is considered here for the analysis. This report also gives an idea about the current project of the company and the revenue earned by the company from the current project. It also gives a view about the market structure of the company. The market structure of the company is monopolistic competition. The market structure is monopolistic because there are many sellers and buyers. There are no barriers for other companies to take entry into the market and even the consumers can select their own choice able product over another product, as there are many options for them. It also analyses the market structure of the mining industry. The report also gives a brief about the demand and supply of the company. There is a mention of the elasticity of the demand and supply of the company. The elasticity of demand of the company is inelastic because the use of the electric vehicle is increasing therefore the demand for the lithium ion battery is also increasing. Hence, the consumer is less responsive with the change in the price of the commodity. Similarly, the elasticity of supply is also inelastic. As the demand of the lithium ion battery is increasing, the supply of the battery is also increasing. Therefore, the producer is also less responsive with the change in the factor prices because the producer will be able to sell the product at any price. Hence, the elasticity of supply is also inelastic. This report also gives a brief analysis about an impact of an event. That event is recycling of the lithium ion battery. In recent past in Australia, the use of electric vehicle has risen significantly because of that the use of the lithium ion battery is also increasing; to meet this increasing demand the company is using the recycling process. This also increased the profit margin of the company.
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