Wednesday, December 14, 2011

A level economics help!!?

Due to the strike in Canada, Russia sold more nickle than they ordinarily would have, to maintain a stable price and market for nickel. But since other factors increased the demand for nickle, speculative demand became a factor anyway and the low stocks prevented the normal protection against that speculative demand. Additionally, technology delays have limited the ability to increase the supply of nickel in the short run. Steel producers therefore have an incentive to look for alternatives to nickel, as the costs will be high for at least the next two years. The key to this problem seems to be the probability of success by the steel producers in finding a substitute for nickel that will save money fast enough to be cheaper than simply riding out the temporary increase in price of nickel. It seems like in addition to a temporary increase due to the supply concerns, there is a long term increase in demand for nickel, so if a substitute can be found that is more expensive than nickel was in early 2003, it still warrants investigation and development depending on the cost. This poses a threat to a higher price for nickel, but seems unlikely to threaten the original early 2003 price and production levels unless the steel producers find an alternative that is cheaper than nickel once the investments are made. Even then, the investments would have to pay off in just a couple of years, and that is unlikely in my opinion. I think nickel resumes production at gradually growing rates over time as the strike is over, the technology catches up on extraction techniques and the speculation dies down.

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