Lecture 2Determination of Supply in MineralMarkets
Supply is determined by◦Own price◦Technology◦Input costs- wages, energy interest rates etc◦Market structure -collusions is not uncommon◦Government policy – environmental, land use policyJust as with demand, supply elasticity increases withthe length of time. In theImmediate runfirmscannot readily adjust, in theshort runvariablefactors can be adjusted. In thelong runproductioncan be increased up to known capacity. In theverylong runthe known mineral deposits will change.Over time elasticity of supply increases.Supply2
3A Schemata of MineralSupply
4Supply Response overTime
Single product or Co or By product.◦Mineralizationis rarely of one mineral alone e.g. gold is oftenfound with copper or silver and zinc is often foundwith lead andmolybdenum. The process of extraction tends to result in conflictsbetweenthe value of one mineral as opposed to another◦In some cases where there are low value industrial minerals they‘slagged off’ and left in tailings or slag deposits. ( this is why theyare often mined at the end of mine life )Technology Required◦Engineerswill tell you that is possible to liberate a mineral fromany deposit but sometimes the economics, environmentalconsequences and state of technology mean that is by no meansapparent. This needs to be carefully evaluated at feasibility studystage.The Product5
Quality◦The quality of the mineral resource is frequentlyoverlooked by engineers but the quality can begreatly effected by production processes egwashing of coal which decreases ash content andmakes for better and cleaner burning thermalcoal. Coal prices vary from $40-80 per tonnedepending on the quality and whether it is highquality coking coal ( for iron production) or lowerquality thermal coalThe Product6
Despite what is normally believed of competitivemarkets i.e. the actions of other producers do notmatter, one must be aware of the production of othersand its expected growth over time.First it is necessary to establish what has beenproduced over the last ten years by other producers.Increasingly consultants produce annual reports forindustry players. This is done by Bain for Diamonds,Amplats does this PGMs and Goldfields used to do itfor Gold Industry associations do this for base metals.Never base forward projectionssolely on whathappened in the past.Supply7
To determine supply you need to do this by firm,country and mine- very boring but essentialAlso must know whatother existing new minesthere are to determine whether your deposit ispossibleProfound changes do occur and we will discussthese when we get to the discussion of thesuper-cycle.