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The financial crisis of 2008 impacted the demand negatively and caused aluminium prices to fall drastically as can be seen by the graph between 2008 and 2009. Approximately price fell by 50% between mid-2008 to 2009. Transportation derives the demand heavily, especially in the developed markets, which pushes the price upwards like in the year 2011 it rocketed upwards when the demand was huge from the sectors which drive the demand (Organisation for Economic Co-operation and Development, 2009).Economics Analysis
After 2011, the trend has fluctuated less than the previous years where the prices have fluctuated heavily, mainly due to the financial crisis which affected every industry possible and the effects were huge on the aluminium industry as well. Even in the aeroplane industry, the metal is used to construct helicopters and planes. However, the construction industry accounts for major portion of demand and in developed nations it amounts for 15-20% of the total demand and in developing countries it is around 30%.Economics Analysis
It is used in doors, roofs and framing which results in higher prices while usage in housing slumps result in lowering the prices. The prices were the highest where the graph started, signifying huge demand but lesser supply while in the last year it way below the starting point signifying lower demand or more supply.
The rationalization of the output of the aluminium industry should have had occurred a long time ago because of the unchecked oversupply that has been persistent in the marker in the six years. This graph shows the basic theories of economics i.e. the theories of supply and demand have been rendered useless because there is cheap money available which has resulted in a lot of economically viable cash and carry deals which have set up certain rules and logistical restriction of LME which has resulted in the restriction in the flow of out of the warehouses of the metals from the shed of the various warehouse companies.
When both these practices occur at the same time and with collaboration with each other than that would entail that the producers and traders work out ways that would help them maintain profit as well as help them keep the surplus aluminium off the market. These acts are in fact viable for the economy but even in the best terms it would be safe to make the assumption that the status quo that is currently being maintained will last.
However, here does exist the risk of reality creeping up and catching up with the current market, which would entail that present circumstances might disentangle in an unruly way, but the mere fact that most developed and highly effective markets have still not tried to figure out a methodology to correct the practices makes it safe to assume that the abnormalities are more often than not likely to continue in the same manner (Lottermoser, 2010).
This however means that the outlook that is derived from the economic analysis and observation of the graph is more on the basis of subjective reasoning as opposed to fundamentals. The observation of the graph leads to the observation that price of aluminium continues to move back and forth in the previous 12 months and it has gone to as high $1,900 per tonne and thus lies in the approximate range of $ 1,650-1,900.
Economics Analysis The surprising fact that has been derived from the economic analysis of aluminium prices over the spread of the six years observed in the graph is the fact that the enormous oversupply along with the consistent surpluses in supply still served to be lucky for the high cost producers as the prices did respond negatively or rather in any way to the oversupply.
However, it is obvious that the high cost producers do not feel extremely at ease with the whole situation thus the economic analysis of the aluminium prices has result in the observation that there has been interested hedge seller into the strength of the price; Economics Analysis this has helped the upper side cap of approximately $1,900. The observation of the current scenario and the analysis of the aluminium market makes it safe to assume that the cap set by the hedge sellers would be lasting for a long period of time or at least until and unless the market is on its way to shift back into the deficit in supply that it is used to being in…
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