Omer discussant Luke H PhD Conference 2012

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Omer discussant Luke H PhD Conference 2012

  1. 1. West  and  Central  African  iron  ore   development  and  its  impact   on  world  prices   Author  Luke  Hurst   Discussant  Omer  Majeed  
  2. 2. Strengths     •  A  very  relevant  issue  for  China,  Australia,   Africa  and  other  Asian  economies.     •  In  depth  case  study.     •  Looks  at  a  lot  of  relevant  variables.  Different   players,  different  scenarios  and  individual   country  capaciDes.     •  Enjoyed  reading  it.    
  3. 3. SuggesDons/comments   Supply  and  Demand  Curve   •  Price  and  Supply  analysis  should  incorporate   supply  and  demand  curve  analysis.     •  Look  at  how  elasDc  demand  and  supply  curves   are.     •  How  much  would  Africa  add  to  world  supply?     •  How  much  would  that  shiI  the  world  supply   curve  by?  
  4. 4. SuggesDons/comments   Uncertainty  maKers.     •  Uncertainty  maKers.     •  You  need  to  take  into  account  of  uncertainty.  
  5. 5. SuggesDons/comments   •  China’s  demand.  Slowing  of  growth  and   concerns  of  a  housing  bubble  in  China  may   mean  that  the  demand  of  steel  and   consequently  iron  ore  declines.     •  How  would  that  impact  worlds  demand  curve   quanDtaDvely?   •  How  would  that  impact  the  NPV  of  these   investment  mines  projects  in  Africa  and   elsewhere?  
  6. 6. SuggesDons/comments   •  “BREE’s  (2012)  forecast  indicates  that  iron  ore   exports  to  China  will  conDnue  to  grow  at   around  2.8  per  cent  per  annum  between  2012   and  2017  (a  total  increase  of  around  141mt   over  the  period)  (see  Table2  below).”   •  Point  forecasts  can  be  quite  risky.     •  Especially,  when  you  don’t  take  into  account   model  uncertainty.    
  7. 7. SuggesDons/comments   •  Northern  Territory  forecasts  of  commodity   were  prone  to  major  fluctuaDons  (demand,   supply,  discoveries,  exchange  rate  fluctuaDons   data  problems).   •  Frances  Creek  mine  exports  to  China.   •  ABARES  revisions.     •  I  think  they  had  to  substanDally  revise  a  lot   their  forecasts  when  I  was  there.    
  8. 8. SuggesDons/comments   •  Individual  economies  and  circumstances.   Need  to  incorporate   •  Australia/Northern  Territory.  Labour  costs   going  because  of  other  major  mining   developments.     •  INPEX,  Northern  Territory.   •  Gorgon,  Wester  Australia.     •  Compete  for  labour  force.    
  9. 9. SuggesDons/comments   •  Given  all  this,  there  is  a  lot  of  model   uncertainty.   •  Should  be  explicit  about  model  uncertainty.     •  Can  use  scenarios  for  demand  (as  was  done   for  Supply)   •  Can  use  LOP,  BMA.     •  Clark-­‐McCracken  (CM,  JAE,  2008).  Ensemble   improves  forecast.      
  10. 10. SuggesDons/comments   Strategic  Games   •  Good  analysis  on  countries,  but  what  about  companies?     •  Rio  Tinto,  BHP,  etc?  They  operate  in  Australia,  as  well  as   Africa.     •  They  want  to  maximize  profits  (NPV  of  returns).  Don’t  want   prices  to  plunge.     •  China  an  aberraDon.  A  big  aberraDon.  But  once  they  own   an  asset.  They  have  a  trade  off  trying  to  maximize  NPV   return  from  that  asset,  or  providing  a  cheap  rate  for   companies  back  home.     •  OligopolisDc  compeDDon.     •  Game  theory.  Collusion?  Compete?  How  would  that  change   the  analysis.    
  11. 11. SuggesDons/comments   Companies  being  pushed  out   •  Good  analysis.   •  What  about  technology?  Does  that  maKer   about  which  companies  stay  and  which  don’t?  
  12. 12. SuggesDons/comments   Efficiency  gains   •  China  and  India  will  not  be  able  to  cost  compete   with  other  economies.     •  Efficiency  gains.  As  they  move  more  towards  their   comparaDve  advantage.  This  efficiency  gain   should  maKer.     •  It  is  not  about  how  many  mines  you  have,  rather   how  much  growth  in  welfare  (  GDP  per  capita,   employment  growth  and  cost  of  living  pressures)   maKer.     •  It  should  be  noted  that  resulDng  efficiency  gains   can  be  big.    
  13. 13. Conclusion.   •  A  good  case  study.     •  Relevant  topic  to  Asia,  Africa  and  Australia.     •  Will  benefit  from  a  bit  more  in  depth   quanDtaDve  economic  analysis.      

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