As Japan embarks on one of the most expensive reconstruction efforts in history, it is moving commodities markets and giving a boost to the outlook for materials such as coal, copper and lumber.
The Japanese government on Wednesday estimated the cost of rebuilding at up to JPY 25 trillion making it one of the world’s costliest natural disasters.
Those early estimates are expected to climb as Japan continues to lay out its rebuilding plans after the March 11 earthquake and tsunami that struck the northeastern part of the country. The figures don’t include the broader economic costs of a nuclear crisis caused by a radiation leak from a stricken nuclear plant.
Uranium, used to fuel nuclear plants, remains the biggest loser among commodities as a result of the Japanese disaster with spot prices down about 10 per cent since the nuclear crisis was revealed. While short-term demand for metals and minerals may drop as a result of Japan’s stalled economy and planned power outages that crimp industrial production, investors are already driving up prices on speculation of a pickup in demand once rebuilding is under way.
Metallurgical coal and iron ore, which are used in steelmaking, and copper, aluminum and nickel which are widely used in power and construction, are expected to see gains. The need for building supplies in Japan, the world''s third largest economy could help stave off a possible price correction that some analysts saw on the horizon.
A team of Credit Suisse analysts wrote in a recent report that as the reconstruction effort commences, demand is likely to be higher than it otherwise would have been, providing a boost to global demand for basic materials.
The impact was evident across many commodities with copper rising 2% to around USD 4.40 per pound its high level since before the disaster. Aluminum, used in packaging and building materials and as cheaper alternative to copper, rallied to its highest spot since September, 2008. Lead which has moved up steadily since the earthquake, traded Wednesday around 3 year highs. Lead is used in batteries which are proving crucial in providing backup power as Japan endures electricity shortages.
Uncertainty over the longer term impact of the Japanese disaster helped push the price of gold to a record USD 1,438 an ounce in New York on Wednesday while silver climbed to USD 36.85 an ounce its highest since 1980.
Ms Patricia Mohr an economist and commodity market specialist at the Bank of Nova Scotia said that “I think the reconstruction will tend to lift overall economic activity in Japan and will also boost demand for many building materials and metals and steel and cement that go into rebuilding.”
While the nuclear crisis has led to a drop in uranium prices and share prices for producers, Ms Mohr sees a slow but steady comeback of the sector. Countries such as China, India and Russia have little choice but to continue with nuclear power development plans.
She said that if they don’t proceed with nuclear power the impact on fossil fuel prices will be enormous. If countries are concerned about reducing greenhouse gas emissions, nuclear energy is still the way to go.
( source: www.steelguru.com )