Managerial Economics Assignment on Coking Coal

INTRODUCTION:-

XYZ Limited company manufacturers coking coal, Coking coal is manufactured by heating a
coal in absence of oxygen. It is used in steel manufacturing plant. Coking coal (Coke) is used as
fuel and as a reducing agent in smelting iron ore in a blast furnace.

OBJECTIVE:-

Provide a demand forecasting for Coking coal and provide marketing strategy for 2 yrs.

METHODOLOGY:-

I am using barometric technique and input/output analysis.

Barometric technique is used for examine the relationship between causal or coincident events to
predict future events. This approach is based on the logic that current development can serve as a
barometer of the future.
Here the barometric technique will predict the future demand for the coking coal however
understanding its economic effect we need to consider input/output analysis. The input/ output
method forecast the effect of one sector on another sector, Rise in automobile industry will
increase the demand for steel.

VARIABLES:-

Following variables directly or indirectly affect the demand for coking coal thus XYZ limited
has too focus on following variables

1. Steel Industry

Coking coal is used in steel plants to manufacture steel sheets from raw material; the
coking coal is used in furnace to melt the raw material (IRON ore), 500 – 550 Kg Coking
coal is used to produce 1 tonnes of steel.
As the demand for steel increases, the demand for coal also increases.

• IMF expects global steel demand will grow by 4% in 2010.

(Source- http://www.nerdsofsteel.com/2010/02/12/2010-gdp-growth-and-steel-
demand-forecast/)

• Steel Minister, Mr Virbhadra Singh said that India will be doubling its capacity to 124
million tonnes (MT) by 2012.
(Source - http://www.ibef.org/industry/steel.aspx)

• SAIL is planning to set up a 12-million tonne plant in Jharkhand.

(Source - http://www.ibef.org/industry/steel.aspx)

• Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$

171.8 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.
Source - http://www.ibef.org/industry/steel.aspx

From above points it is clear the there is large demand for steel, as the demand for steel
increases; the demand for coal also increases.

Submitted By: -RAHUL MALANI

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 Managerial Economics Assignment on Coking Coal

a. Demand from Automobile Industry

Steel is an integral part of automobile industry, Steel metal sheets are used for making the
body of vehicles, and also steel is used for making parts of the internal parts of an engine.
As the demand for Automotive sector increases demand for steel increases and indirectly
demand for coking coal increases.

• Production of automobile unit was 2.6 million in 2009; Indian market is driven by the
sales of car and the two-wheelers. While the cars segment posted a 25.10 per cent
growth in 2009-10, the two-wheelers witnessed a 26 per cent surge.
The SIAM has forecasted 10-14 per cent growth for 2010-11.
(Source – Society of Indian automobile manufacturer)

From above points it is clear the there is demand for steel, as the demand for steel
increases; the demand for coking coal also increases.

b. Demand from Real Estate

The real estate sector in the country is one of great importance. In Real estate steel is
used in the form of reinforcement bars, steel ingots, construction equipments like
cranes, girder erectors. Thus increase in Real estate will increase demand for steel in
turn demand for Coking coal.

• Allocation for urban development were increased by more than 75 per cent from US$
660.3 million to US$ 1.17 billion in 2010-11
(Source – Indian Budget 2010 -11)

• Shristi Infrastructure Development Corporation will invest US$ 444.7 million over the
next three years in seven small cities in West Bengal, Tripura and Rajasthan. The
money would be used to build integrated townships, healthcare facilities, hospitality
and sports facilities, retail malls, logistics hubs and commercial and residential
complexes
(Source - http://www.ibef.org/industry/realestate.aspx )

• Tata Housing is planning to launch about 10 new residential projects in both

affordable and luxury segments in 2010-11, with an investment of about US$ 268.9
million along with its partners
(Source - http://www.ibef.org/industry/realestate.aspx )

From above points it is clear the there is large demand for steel, as the demand for steel
increases; the demand for coal also increases.

2. EXPORT

Foreign countries has demand for coking coal, as export is direct variable for demand as
export increases demand for coal also increases.

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 Managerial Economics Assignment on Coking Coal

• Table below shows the demand from various foreign countries

Country Demand for coking

coal (Metric Tonnes)
JAPAN 56 Mt
KOREA 24 Mt
GERMANY 9 Mt
UK 7 Mt

(Source - http://www.worldcoal.org/coal/market-amp-transportation/ )

From above points it is clear the there is large demand for coking coal

3. Recession or Slowdown

Recession is nothing but a slowdown in economy which directly affects the growth of
country. In recession the demand for every product reduces, major effect has seen on
construction and manufacturing companies.
During recession purchasing power was reduced as many people faced the Job loss or
tested the pink sleep, also there is no demand from foreign companies and import & Export
between countries have been reduced.
Currently we have faced the problem of recession in 2008 – 09 and market is still in
slowdown and it is just stared to emerge but many foreign countries still facing the problem
and because of globalization every county have to suffer this in all affects the economy and
thus demand from steel manufactures, Automobiles, and construction reduces this in all
affect then demand for coking coal.

4. Quality

Coal must meet a set of criteria for use as coking coal, determined by particular coal
assay techniques. The coal contains various kings of volatiles such as moisture content, ash
content, sulfur content, tar, and plasticity. Bituminous coal must first be heated to remove
all volatile components to form coking coal, as coking coal is used in the steel
manufacturing, where carbon must be as volatile-free and ash-free as possible. If the
coking coal contains the above volatiles then steel manufacturers will not prefer it and it
reduced the demand for coal. Quality of coking coal is verified from laboratory test.
Feedback for the quality of coking coal we can get from the customer feedback i.e. steel
manufacturers.

5. Price

Price of coking coal is important factor to decide the demand for coking coal.
As price is less then demand will be more and if price increases then demand will reduce.

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 Managerial Economics Assignment on Coking Coal

Demand Equation for Coking coal:-

QDC = F (P, QDs, E, Q, R)

Where
QDC = Demand for coking coal
QDS = Demand for Steel
P = Price of coking coal
E = Export of coking coal
Q = Quality of coking coal
R = Recession or slowdown in country

QDs = F (A, C)

QDS = Demand for Steel

A = demand from Automobile industry
C = demand from real estate

Demand equation can be written in linear equation formant

QDS = X + BA A + BC C

Where
X = Combined influence of all other determinants of demand for steel
BA = Coefficient of automobile industry
BC = Coefficient of Real Estate

QDC = Z + BP P+ BEE + QDS + BQ Q+BRR

Where
Z = Combined influence of all other determinants of demand for Coking coal
BP = Coefficient of Price of coking coal
BQ= Coefficient of Quality of Coking coal
BE = Coefficient of Export of coking coal
BR = Coefficient of Recession or slowdown in country

Marketing Strategy:-

1. Capture the demand in the market and focus on major steel manufactures in the
market. Following are the steel plants are operating in India
- Salem steel plant at Tamil Nadu
- Bhilai steel plant at Chattisgarh
- Durgapur steel plant at West Bengal
- Bakore steel plant in Jharkhan
2. Focus on countries which are importing coking coal
3. Trade Online – use internet to provide business to business solutions (B2B)

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