Foreign superpowers eye Australia

fishbuff SG

By Florence Chong

February 18, 2008 05:17am
Article from: The Australian

AUSTRALIA has attracted sizeable investments from some of the world's biggest and most established sovereign wealth funds.

The most active are arguably the Singapore twins - Temasek and the Government of Investment Corporation - both of which have long been players in key sectors of the Australian economy.

Neither Temasek nor GIC publish the value of assets by locations, but collectively they easily own more than $20 billion of holdings in Australia.

Combined, the two Singapore investors represent the world's second-largest sovereign wealth fund, with assets totalling $US489 billion ($539 billion), according to Morgan Stanley.

But in coming years, the Singapore investors may be overshadowed by the new "financial superpower" - China Investment Corporation, China's sovereign wealth fund formally launched last year.

TCH05 SG

china will be going after the australia coal, iron ore and other minerals they need to support their booming economy.

Genie99a SG

china will be going after the australia coal, iron ore and other minerals they need to support their booming economy.

and uranium bro ..... bad for the environment

TCH05 SG

and uranium bro ..... bad for the environment

Australia is already talking about blocking SWF from china, just like how they block SIA from flying the Aus-US route.

Genie99a SG

Australia is already talking about blocking SWF from china, just like how they block SIA from flying the Aus-US route.

Aye .... i think they probably won't but its good revenue and Australia's against setting up nuclear reactors here anyway .... might as well sell it

TCH05 SG

Aye .... i think they probably won't but its good revenue and Australia's against setting up nuclear reactors here anyway .... might as well sell it

but once china acquire the australian asset, it will mean China will dictate the price isnt it? Actually australia is also the main culprit causing global inflation because they are the one who keep jacking up price of coals and iron ore.

maurizio13 SG

Layman with no knowledge of basic economics should not indulge in dabbling with it.

A business can only dictate price if it's the only producer of such commodity.

Is Australia the only producer of coal and iron ore in the world?

The only other monopolies I know of are the Singapore GLCs, GICs and 他妈是.

They control the Telecoms & Post, Electricity & Power and Transport through quasi independent & quasi competitive businesses to dictate prices.

TCH05 SG

Layman with no knowledge of basic economics should not indulge in dabbling with it.

A business can only dictate price if it's the only producer of such commodity.

Is Australia the only producer of coal and iron ore in the world?

The only other monopolies I know of are the Singapore GLCs, GICs and 他妈是.

They control the Telecoms & Post, Electricity & Power and Transport through quasi independent & quasi competitive businesses to dictate prices.

try adding BHP and Rio Tinto and you will see a clearer picture.

Or yes, BHP and Rio Tinto are the no.1 and no.2 miners in the world. :D

Please excuse my simple layman understanding of economics.

maurizio13 SG

try adding BHP and Rio Tinto and you will see a clearer picture.

Or yes, BHP and Rio Tinto are the no.1 and no.2 miners in the world. :D

Please excuse my simple layman understanding of economics.

Monopoly (economics), economic situation in which only a single seller or producer supplies a commodity or a service. For a monopoly to be effective, there must be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market. This enables the seller to control the price.

Source: http://uk.encarta.msn.com/encyclopedia_761567422_1/Monopoly_(economics).html

If they take over, subject to anti-trust laws. Do you think that they would be the ONLY producer in the world? If the price exceeds the price of certain substitutes, won't consumers switch to other substitutes.

TCH05 SG

Source: http://uk.encarta.msn.com/encyclopedia_761567422_1/Monopoly_(economics).html

substitute? Can you build a bridge or building out of thin air?

Ever ask yourself why after Exxon acquire Mobil the company making record profits even when crude oil prices are record high?

maurizio13 SG

substitute? Can you build a bridge or building out of thin air?

Ever ask yourself why after Exxon acquire Mobil the company making record profits even when crude oil prices are record high?

You mean Iron can't be substituted with other metals if it gets too costly (if price is dictated by a monopoly)?

Having market power only constitutes a oligopoly, not a monopoly which can dictate price.

First of all, Exxon-Mobil don't dictate the price of pump prices, it works on the general concensus of all the major petroleum company. That's why when any of the petrol companies in Singapore increase or lower their price, their competitors will follow suit, it's not like they dictate the price. Moreover the shares are freely traded (unlike other government controlled companies in Singapore), if you believe that they will make more money then invest your money there.

The only Monopoly I know of are all in Singapore, if MRT & SBS decides to raise it's fare by $1.00, can you say "oh no, I will boycott and not take MRT & SBS". They are the market power, if they raise $2.00 you also have to LL take, else ride a bicycle or walk to work, or stay at home everyday and eat air.

TCH05 SG

I am not sure why you are talking about mono and oligopoly in the first place when all I said was China is interested in the mining companies in Australia because they need the natural resources to support their booming economy.

Replace steel in construction? what would you suggest?

Exxonmobil are owners of refineries and they are able to control the pump price by limiting the refinery capacity.

As for BHP and Rio Tinto, they are like refinery too as they can control their mining capacity to maximise returns at the expenses of their customers.

sgdiehard SG

You mean Iron can't be substituted with other metals if it gets too costly (if price is dictated by a monopoly)?

Having market power only constitutes a oligopoly, not a monopoly which can dictate price.

Companies like Exxon Mobil are making record profits because of the the high crude prices, not because of their downstream operation.

In a oligopoly market, suppliers form cartel to fix prices, it is no different from sole supplier dictating prices in a monopoly. what general concensus among the oil companies? that is price fixing.

Layman with no knowledge of basic economics should not indulge in dabbling with it. If you are not in the industry, don't pretend you know how prices are decided.

onlooker123 SG

Oil company executives meet once a year at some exclusive resort to set prices. Serious.

maurizio13 SG

Replace steel in construction? what would you suggest?

Exxonmobil are owners of refineries and they are able to control the pump price by limiting the refinery capacity.

As for BHP and Rio Tinto, they are like refinery too as they can control their mining capacity to maximise returns at the expenses of their customers.

Intially posted by you:
"but once china acquire the australian asset, it will mean China will dictate the price isnt it? Actually australia is also the main culprit causing global inflation because they are the one who keep jacking up price of coals and iron ore."

You are talking nonsense, when you said China can dictate prices by taking over ALL of Australia's Iron Ore companies. Even if they take over all of the Australian Companies they are NOT the single producer, there are still producers around.

There are lots of other substitutes for Iron, other non-ferrous alloys.

"Nonferrous metals and nonferrous alloys are not based on iron and include alloys of aluminum, copper, titanium, zinc, nickel, cobalt, tungsten, precious metals, and refractory metals. They are used in a variety of applications from construction to medical devices. A nonferrous alloy consists of two or more materials, one of which must be a nonferrous metal. Many nonferrous metals can be used in alloys and are chosen for specific characteristics such as strength, magnetic and electrical properties, and corrosion resistance. Some of these are transition metals, meaning they belong to the d-block in the periodic table and are elements which form an ion with a partially filled d-shell of electrons. Transition metals include zirconium, a silvery white metal; hafnium, a greyish metal; osmium, a blue-black metal; and tantalum, a rare, blue-gray metal. These nonferrous metals are used to create compounds such as aluminum zirconium, a common ingredient in antiperspirants, and osmium tetroxide, a volatile catalyst used to hasten chemical reactions. Other nonferrous metals and nonferrous alloys include copper beryllium, which is used for electronic components, and beryllium oxide, which is used for its electrical insulating properties.

Nonferrous metals and nonferrous alloys are useful in many applications because of their versatility, high density, and tensile strength. For example, tantalum sheet metal is used frequently to create surgical instruments because it does not react with bodily fluids and is corrosion resistant. Some nonferrous metals and nonferrous alloys are highly combustible and volatile, including powder zirconium, which may be stored under water for safety, and beryllium oxide, which is highly toxic if inhaled. Welding zirconium is also available. Nonferrous metals and nonferrous alloys are useful for applications requiring nonmagnetic, lightweight, high strength compounds. Since nonferrous metals and nonferrous alloys have high melting points, they are also often used in electrical and electronic applications."

Source: http://materials.globalspec.com/LearnMore/Materials_Chemicals_Adhesives/Metals_Alloys/Nonferrous_Metals_Alloys

Source: http://www.itochu-nfm.co.jp/english/nfm_guide_e.pdf

You should know better, sand which is a major component of buildings was banned by the Indonesian government, but still we managed to place less reliance on sand and search for other alternatives. You should understand the human endeavour, whenever there is an obstacle, humans will certainly find ways to work around that obstacle. Surely, when all our non-renewable resources are used up, you don't expect humans to just sit there and say "now that there is no oil (or any other non-renewable resources), we will just sit here and die", without thinking of any alternative solutions.

If Exxon Mobil restrict production, price goes up, Shell increases production, won't that run contrary to Exxon's intention of increasing prices. Price dictation or fixing will not happen without collusion in an oligopoly.

Say Brazil Iron and Oz Iron, both sell 100 tonnes each at $1,000. Oz Iron cuts production to 50 tonnes. The price shoots up to $1,500 per tonnne.

Brazil Iron still producing at 100 tonnes makes $150,000, while Oz Iron who cut production to inflate price makes $75,000. Who does it benefit?

Dictating price can only happen in a Monopoly.

I hope this helps your understanding. I only disagree on your understanding of dictating prices and monopoly.

maurizio13 SG

Companies like Exxon Mobil are making record profits because of the the high crude prices, not because of their downstream operation.

In a oligopoly market, suppliers form cartel to fix prices, it is no different from sole supplier dictating prices in a monopoly. what general concensus among the oil companies? that is price fixing.

Layman with no knowledge of basic economics should not indulge in dabbling with it. If you are not in the industry, don't pretend you know how prices are decided.

Reply to Monopoly and Oligopoly posted above.

maurizio13 SG

The reason why cartels are not sustainable is well-explained by the prisoner's dilemma. The dilemma reads as follows:

Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?

The dilemma can be summarized thus:

As can be seen, by staying silent (cooperating) both prisoners are better off than in the case where both decide to betray (deviate from the agreement, that is, competing). Nevertheless, if only one of the two prisoners betray while the other stays silent, the former would be free, which is still more desirable for him than having to stay in prison for six months. Exactly the same occurs in a cartel: while their members are better-off being part to the agreement than competing, deviating (for example by reducing one's price) could imply capturing a big amount of the market demand and making big profits. In other words, the members of a cartel always have an incentive to deviate from their agreement which explains why cartels are generally difficult to sustain in the long run. Empirical studies of 20th century cartels have determined that the mean duration of discovered cartels is from 5 to 8 years. However, once a cartel is broken, the incentives to form the cartel return and the cartel may be re-formed.

Whether the members of a cartel will choose to cheat on the agreement will depend on whether the short term returns to cheating outweigh the medium and long term losses which result from the possible breakdown of the cartel (this is why, also in the Prisoner's dilemma game, the equilibrium varies if the game is played once or if it is, instead, a repeated game). The relative size of these two factors depend in part on how difficult it is for firms to monitor whether the agreement is being adhered to and on the importance of short-run gains relative to the long-run gain. The longer the time firms in the cartel can cheat without detection, the greater the gains from doing so. Therefore, if monitoring is difficult, the higher the probability that some part to the agreement will cheat and the more unsustainable the cartel will be.

There are several factors that will affect the firms' ability to monitor a cartel:^[9]

Source: http://en.wikipedia.org/wiki/Cartel

Shotgun SG

Thats known as Game Theory. Which is a different view and perspective from what what sgdiehard mentioned. I think its quite a new thing too.

Its not always reliable to apply game theory observations of real world situations since there are many unseen factors that affect them.

maurizio13 SG

Thats known as Game Theory. Which is a different view and perspective from what what sgdiehard mentioned. I think its quite a new thing too.

Its not always reliable to apply game theory observations of real world situations since there are many unseen factors that affect them.

You don't have to inform me that it's game theory conceived by John Nash or where is the nash equilibrium in this game.

Game Theory has been around for almost 70 odd years, while prisoner's dilemma has been around for 57 years, it's only ignorant fools like you who don't know anything about it. You only got to know about game theory when "A beautiful mind" hit the big screens. Maybe that's your definition of new (shrugs). I would think that game theory is almost 2-3 times as old as you and yet you call it new. Your understanding is most flawed, just like your fallacious understanding of Oligopolies.

"Up until the 1930s economics involved a great deal of mathematics and numbers, but almost all of this was either superficial or irrelevant. It was used, for the most part, to provide uselessly precise formulations and solutions to problems which were intrinsically vague. Economics found itself in a state similar to that of physics of the 17th century: still waiting for the development of an appropriate language in which to express and resolve its problems. While physics had found its language in the infinitesimal calculus, von Neumann proposed the language of game theory and a general equilibrium theory for economics.

His first significant contribution was the minimax theorem of 1928. This theorem establishes that in certain zero sum games involving perfect information (in which players know a priori the strategies of their opponents as well as their consequences), there exists one strategy which allows both players to minimize their maximum losses (hence the name minimax). When examining every possible strategy, a player must consider all the possible responses of the player's adversary and the maximum loss. The player then plays out the strategy which will result in the minimization of this maximum loss. Such a strategy, which minimizes the maximum loss, is called optimal for both players just in case their minimaxes are equal (in absolute value) and contrary (in sign). If the common value is zero, the game becomes pointless.

Von Neumann eventually improved and extended the minimax theorem to include games involving imperfect information and games with more than two players. This work culminated in the 1944 classic Theory of Games and Economic Behavior (written with Oskar Morgenstern). The public interest in this work was such that The New York Times did a front page story, something which only Einstein had previously elicited.

Von Neumann's second important contribution in this area was the solution, in 1937, of a problem first described by Leon Walras in 1874, the existence of situations of equilibrium in mathematical models of market development based on supply and demand. He first recognized that such a model should be expressed through disequations and not equations, and then he found a solution to Walras problem by applying a fixed-point theorem derived from the work of Luitzen Brouwer. The lasting importance of the work on general equilibria and the methodology of fixed point theorems is underscored by the awarding of Nobel prizes in 1972 to Kenneth Arrow and, in 1983, to Gerard Debreu.

Von Neumann was also the inventor of the method of proof, used in game theory, known as backward induction (which he first published in 1944 in the book co-authored with Morgenstern, Theory of Games and Economic Behaviour).^[5]"

Source: http://en.wikipedia.org/wiki/John_von_Neumann

The classical prisoner's dilemma

The Prisoner's Dilemma was originally framed by Merrill Flood and Melvin Dresher working at RAND in 1950. Albert W. Tucker formalized the game with prison sentence payoffs and gave it the "Prisoner's Dilemma" name (Poundstone, 1992).

The classical prisoner's dilemma (PD) is as follows:

Source: http://en.wikipedia.org/wiki/Prisoner%27s_dilemma

Do you have any literacy in Economics? Or is this going to be another 明珠暗投?

Maybe you somehow missed sgdiehard's statement "In a oligopoly market, suppliers form cartel to fix prices, it is no different from sole supplier dictating prices in a monopoly." and therefore got your understanding fumbled up.

If you have a different theory from Nobel Laureates with regards to Oligopolies, please share with us your alternate theories. I am all ears.

Please please, do share with us your alternate theory.

TCH05 SG

There are lots of other substitutes for Iron, other non-ferrous alloys.

Source: http://materials.globalspec.com/LearnMore/Materials_Chemicals_Adhesives/Metals_Alloys/Nonferrous_Metals_Alloys

Source: http://www.itochu-nfm.co.jp/english/nfm_guide_e.pdf

Say Brazil Iron and Oz Iron, both sell 100 tonnes each at $1,000. Oz Iron cuts production to 50 tonnes. The price shoots up to $1,500 per tonnne.

Brazil Iron still producing at 100 tonnes makes $150,000, while Oz Iron who cut production to inflate price makes $75,000. Who does it benefit?

Dictating price can only happen in a Monopoly.

I hope this helps your understanding. I only disagree on your understanding of dictating prices and monopoly.

I am very impressed by your ability to cut and paste articles to support your argument, however if anybody with basic material engineering background were to read your little "genius" idea about replacing iron or steel in construction industry with a cheaper mineral, they will be laughing their heads off.

To proof my point, I would like to ask you, based on your knowledge on material, can you tell us which metal do you think has very similar or better mechanical properties as iron and is economically viable to replace iron?

Sands? Although they are use in construction industry, but they are very different in the nature as compared to mining for iron ore and coal because

1) They are not an internationally traded commodity

2) Easily collected from the riverbed with simple crane and bardge

3) They dont need expensive processing to turn ore into steel

4) There are many supplier in the market.

In an oligopoly, there is always the dominant company and they are usually the price leader. Just like when Phillip Morris annouce price adjustment for their Marlboro brands, all other premium tobacco companies will follow.

There to 2 things which the steel mills and mining companies negotiate, PRICE and ALLOCATION, and such negotiations are done on a quarterly basis.

In a seller market, such negotiation can become very complex. e.g. mining companies can offer the mills an attractive price, but they might not necessary give them quantity you need to keep their mills running.

At the moment, it is the seller market and China being the largest importer of iron ore in the world, despite them being one of the largest producer, are taken hostage by these mining companies. And that is the reason why the recent move by BHP to acquire Rio Tinto is causing so much fear to the Chinese government.

Back to my point about dictating price, suppose if China (the largest buyer in the world) is to acquire Rio Tinto, they will not have allocation worries and they will be able to dictate the price as they will become both buyer and seller.

Another thing which you might want to know is that buying iron ore and coal is not like how you will do your grocery shopping where you can switch brands anytime you like because iron ore do comes in different grade. And the orgin of the material will also affect have an impact on the cost because transportation is a big cost component in this business.

The business dealing between companies in the mining and steel industry is a very complex one, and one which you cant simply use elementary case study (like the one above) to represent.