Commodity Cost Curves

Commodity cost curves are a visual representation of an industry cost structure that shows cost per tonne of production on the Y-axis and cumulative quantity of production on the X-axis. The width of the bar indicates the quantity of production by a company. The height of the bar shows the cost of production per ton. Companies are arranged in the order of lowest cost producer to the left and highest cost producer to the far right side. So, the farther on X-axis and higher on Y-axis, the costlier it is to produce for that company (Source: Market Realist).

The commodity cost curve provides a visual representation of the industry which allows investors to immediately judge where producing companies sit on the curve and are considered to be economic and which are not. Generally, producing companies want their cost figures to be in the lowest quartile.

For any mining company, its position on the cost curve is important because it will determine how effectively it will be able to withstand the cyclical nature of the commodity cycle. The cost curve also sets the floor for the price because if price falls below the cost of production of some producers, those companies will withdraw from the market (Source: Market Realist).

Commodity Cost Curves

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