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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Japan Earthquake’s Effects Felt Round The World

Commodities / Metals & Mining Apr 04, 2011 - 03:28 AM GMT

By: Anthony_David


Best Financial Markets Analysis ArticleBesides the massive human toll, Japan’s catastrophic earthquake and tsunami has destroyed the region’s civil and industrial infrastructure. Water and electricity supply have been adversely impacted forcing several businesses to slow down or stop operations completely and the chance of radiation from the nuclear reactors at the Fukushima Daiichi power station has increased people’s fears.

The natural disaster has disrupted supplies to manufacturers of products as wide ranging as ships to semiconductors. CLSA analysts said, “Japan remains critical to the global tech food chain. Beyond damage to facilities, supply chain disruptions driven by road, port, power outages are key factors to watch.” They estimated that Japan manufactures about 20% of the world’s technology products and a disruption in supply from Japan would create one of the biggest threats to the global technology supply chain.

Japan is one of the largest users of rare earths and the slowdown in business has translated to a slowdown in the global demand for rare earths as well. The disaster is expected to temporarily stem the rise in rare earth prices but the long-term forecast still stands – demand will outstrip supply.

Furkhat Faizulla, marketing manager at Advanced Material Japan Corp. said, “So if 50 percent of the consumption of the world is in Japan and this 50 percent stops for a couple of weeks, or a couple of months, this will be a huge impact on the consumption side or the demand site”.

Along with providing humanitarian relief, Japan’s government is naturally keen to restore the power grid in the affected areas and bring the nation’s economy back on track. However, until that time, Japan’s rare earth processing capacity will be seriously affected since the processes are highly energy intensive. Under such circumstances, analysts expect rare earth deliveries to Japan to slow down significantly over the next few months. That would mean an increase in the market supply of rare earth metals, which could mean a short-term fall in the prices.

The disruption to port operations also means a delay in shipments of rare earth metals from Japan. On the other hand, the unpredictability of China’s restrictive export policies is likely to make Japanese traders receive all the previously ordered materials that are delivered.

The earthquake and tsunami will also have a significant impact on the global steel market. The tsunami reportedly flooded steel plants of leading steel makers such as Nippon Steel Corporation, Sumitomo Corporation and JFE, among others. Operations had to be stopped since the scrap and raw material storage yards, and the finishing lines of many plants along the Pacific coast lay in the path of the tsunami. Nippon Steel has since resumed shipments from all but its Kaimishi plant in northern Japan.

Analyst Kim Hyun tae at Hyundai Securities said, “The earthquake has reportedly affected around 20% of the Japanese steel production capacity. It will disrupt production in Japan, one of the major steel producers exporting 40% of its output. In contrast, steel demand will rise for damage restoration.“

The inactive ports have brought Japan’s coke, iron ore and scrap import shipments to a halt as well. Japan is a major importer of all three and the fall in demand is likely to result in a price drop. China’s reduction in iron ore demand has already impacted prices and with a concurrent drop in Japan’s demand, the prices are likely to see a further fall.

The finished steel market will see the opposite effect. Japan is a major supplier to the Far East and other South East Asian nations and with outbound shipments stopped, demand will suddenly rise. Of course, there would be no shortage of supply, as China, the CIS and South Korea would gladly fill in the gap. The move will be immediately reflected in the higher prices of long and flat products.

The failure and explosion in two of Japan’s nuclear power plants has caused a 10% loss in Japan’s power supply. The situation shows the risks of depending on only one source of energy, especially one that can cause so much contamination. In the wake of the crisis, Germany was the first European nation to temporarily shut down seven of its old nuclear power plants. Experts will now analyze the security features of the reactors. Switzerland and Finland are some of the other European nations that are reassessing their nuclear safety and rethinking their nuclear power policies.

The secondary effect of the nuclear strategizing is that more traders are focusing on renewable energy sources, especially solar power. In fact, Germany’s Solarworld AG saw a 30% jump in its stock after the government announced its nuclear power plans. Nuclear energy currently contributes 23% of Germany’s total energy supply and renewable energy about 16%. By 2020, renewable energy is expected to meet 47% of Germany’s energy demand.

Japan’s unfolding nuclear incident has already cast doubts about the nuclear power strategy of the US. Even before the incident, investors have been wary about committing money to nuclear projects and with Japan’s current situation, enthusiasm is sure to dip even further. While some are arguing that Japan’s Fukushima Daiichi power station is over 40 years old, others are of the opinion that the public is unlikely to be convinced about the invincibility of new nuclear power projects.

By Anthony David

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is to serve as a monthly compass for those who take a fundamental view of investment regarding the Molybdenum, Manganese and Magnesium metals markets, are concerned with the emerging critical under-supply of these strategic metals to Western nations and wish to profitability chart their course. Each month we will research and provide, in as short and concise a manner as possible, the most applicable information available on resources that will have the biggest impact on our day to day lives. Click here to sign-up for our FREE monthly report

© 2011 Copyright  Anthony David- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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