It didn't take investors long to decide that the Japan earthquake was going to shake up the world's commodity markets. But just how will it impact those markets? That might take a little longer to sort out.
Prices have risen pretty much across the board since the March 11 earthquake, on the assumption that Japan - already a major consumer of mined commodities - was going to need even more of them to rebuild from the quake and subsequent tsunami. Analysts at Deutsche Bank Securities noted that the estimated cost of the damages, at $310-billion (U.S.), is more than half of China's massive $586-billion infrastructure stimulus program launched in 2008 - which they credited with helping fuel the global commodity recovery.
"We believe the amount of dollars [yen]is meaningful, and could provide support to commodity markets at a time when China is decelerating," they said.
Japan demand in perspective
Japan accounted for about 7 per cent of the world's spending on metals and seaborne bulk commodities (such as coal and iron ore) in 2010. That's a fraction of the appetite of China, whose global share was roughly 42 per cent last year. At least for some metals, the knee-jerk price increases since the quake may have overstated Japan's role in the market.
But Japan is the world's dominant importer of coal. It consumes nearly a quarter of the world's metallurgical coal (used in making steel) and nearly a fifth of its thermal coal (used in power generation).
It's in thermal coal, the Deutsche Bank analysts said, that the earthquake may prove to have its biggest impact - due to the Fukushima nuclear-plant crisis stemming from the quake.
"Thermal coal appears to be the key beneficiary of the nuclear crisis in Japan, as the future of nuclear energy is put to the test," they wrote. "[Deutsche Bank]anticipates that demand for coal will increase, even in areas such as Europe which were previously thought to be in structural decline."
Taking stock of coal
The stock market has already been reflecting this. Coal companies have been the biggest gainers, with U.S. coal stocks up 12 per cent since the quake.
But while the quake may have improved prospects for thermal coal, it has somewhat clouded the market for metallurgical coal.
Japan's steel production has been considerably curtailed by the quake's damage and disruption of industrial activity. As a result, prices for met coal could head down in the near term, hurting major met coal producers such as Canada's Teck Resources Ltd.
But in the longer term, the analysts said, Japan will need to re-build stockpiles of metallurgical coal that were damaged in the quake, and will need lots of steel for the rebuild.