• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Steel EconomicsCommentary

Extracts from this document...


"Steel Authority May Cut Production on Lower Demand": Commentary Around the world, steel suppliers are cutting production levels as demand for the commodity is rapidly decreasing. Due to the recent global recession, people are delaying buying cars and houses, both of which are products that are predominantly made of steel. More specifically, ArcelorMittal, the world's largest steel producer will be cutting production by more than 30% in Europe and U.S.A, resulting in an estimated $2.5 billion loss in the fourth quarter. Companies like Steel Authority of India Ltd. were forced to reduce their prices by 6000 rupees ($126) a ton in order to increase demand for the commodity, as people do not have the money to buy steel anymore. The extent of this issue has risen to the point where some steel producers are temporarily shutting down factories, and stopping the purchase of raw slabs of steel, like ThyssenKrupp AG, who is Germany's biggest producer. ...read more.


This solution is based around a buffer stock scheme (A form of intervention to try to stabilize the price of a commodity. Stocks of the commodity are kept and sold when the price is high to try to reduce it. When the price is low further stocks of the commodity are bought)4. The marginal social benefits (incremental benefit of an activity as viewed by the society and expressed as the sum of marginal external benefit and marginal private benefit)5 of implementing a buffer stock scheme would be price stability, and economic growth. By storing the extra steel, if in the future, when the world comes out of the recession, there would ever be a shortage (which would result in high prices and lower demand), prices would stabilize as the large firms would then be able to sell the stored steel back into the market. ...read more.


In conclusion, the marginal social costs (the cost incurred by both the firm and society in producing each extra unit of a good)6 of setting up a buffer stock scheme would be, the hefty amount of start-up capital, the costs of storage, and the fear of scare buyers when the recession ends. Although these MSC's are all major financial concerns, the MSB's outweigh them, as people will be eager to invest in the steel companies, buy new houses and cars, and begin new construction projects (eliminates the fear of scarce buyers). These actions all require steel, meaning thereby that the total revenue generated through this surplus of steel will be greater than the start-up capital, and the storage costs. 1 Notes: Commodity Markets - 29th September, 2008 2 Notes: The law of Supply - September 24th, 2008 3 Notes - The Law of Demand: September 17th 2008 4http://www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=0&glosid=1121 5 http://www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=1&glosid=653 6 http://www.businessdictionary.com/definition/marginal-social-benefit.html ?? ?? ?? ?? I.B Economics Commentary ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Growth and Development Problem Set - IB Economics exam questions and answers.

    Human Development Index (HDI) and Human Poverty Index (HPI) are two of the composite indicators we are focusing on. HDI is a summary measure of human development and measures average achievement in three dimensions: (i) a long and healthy life, measured by life expectancy at birth; (ii)

  2. Macro Economics Notes

    Net property income from abroad The profit coming into Turkey, made by Turkish citizens on profits made overseas minus the profits repatriated i.e the profits leaving Turkey, made by foreign citizens on investments in Turkey. Net National Product GNP - depreciation of fixed assets. Fixed assets mean machinery and infastructure.

  1. Old IB Questions

    increasing all its inputs. Thus, diseconomies of scale can be seen only in the long-run. Diseconomies of scale are responsible for the upward-sloping part of the long-run average total cost curve: as a firm increases plan size, costs per unit of output increase.

  2. The future of Eli Lilly

    This tells a story about heavy research and development, as the market shares tells that Eli Lilly has been successful with this shift in portfolio. On the other hand, Ranbaxy's portfolio has not changed a lot. Anti-infectives were the main product in 1996 and still are in 2000.

  1. Economics Commentary Topic-: Who will prove cartels in steel?

    that's been in limbo for years, even after the related law was passed last year by Parliament. That is the correct forum for consuming and producing industries to have their pricing conflicts addressed. The need for CCI becomes even more glaring given the complex structure of the steel industry-some players

  2. Buffer Stocks

    Elise Ford, Head of Oxfam International's EU office, said: "With such measures, the European Union is undermining the possibility of finding global solutions to hunger and to make agriculture work for the poor.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work