The price of bauxite increased to its highest level due to conditions which impacted supply. Historically, bauxite has traded at between 1500 and 1600 USD per tonne. But the price increased to over 1900 USD in November 2020. Growing demand in Canada for bauxite to be turned into aluminium, coupled with a sharp fall in Jamaican production have both been factors in the price increase. Bauxite production in Jamaica for 2017-18 fell 65% year-on-year due to flood conditions causing damages as well as increased competition. The London Metal Exchange predicts that global consumption of bauxite is likely to be greater than production by 20 million tonnes next year. In the US, companies in the steel and petrol industry have put pressure on the US government to relax import controls, warning that otherwise they might run out of bauxite. Commentators predict that most steel and petrol producers will be unaffected because bauxite is such a small part of their spending. 1.Explain, using supply and demand analysis, why the price of bauxite has been increasing recently.
Question 1
The price of bauxite increased to its highest level due to conditions which impacted supply. Historically, bauxite has traded at between 1500 and 1600 USD per tonne. But the price increased to over 1900 USD in November 2020. Growing demand in Canada for bauxite to be turned into aluminium, coupled with a sharp fall in Jamaican production have both been factors in the price increase. Bauxite production in Jamaica for 2017-18 fell 65% year-on-year due to flood conditions causing damages as well as increased competition. The London Metal Exchange predicts that global consumption of bauxite is likely to be greater than production by 20 million tonnes next year. In the US, companies in the steel and petrol industry have put pressure on the US government to relax import controls, warning that otherwise they might run out of bauxite. Commentators predict that most steel and petrol producers will be unaffected because bauxite is such a small part of their spending.
1.Explain, using supply and demand analysis, why the price of bauxite has been increasing recently.
2. Do you think a) the supply and b) the demand for bauxite is price elastic or inelastic? Justify your choices and explain whether this means any given change in supply or demand will have a bigger effect on the
3. Illustrate the predictions of the London Metal Exchange and explain how this will be corrected.
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