By Sreekumar Raghavan
A major disaster in one nation cannot have a severe impact across the globe because what is more important is the fundamentals and ofcourse the investor interest or panic in a particular commodity or stock and therefore in my response to the TV anchor's questions I maintained a cautious approach harping back to the fundamentals although these days it is not just fundamentals that drive the commodities but huge investments that happen with hedge funds or ETFs that cause volatilities in the market.
Yesterday, evening I got an analysis from The Steel Index (TSI) pointing out that if five major Japan steel mills have been closed and if they remain closed for six months then that would wipe out 2.2 mn tonnes of iron ore demand from the market causing the iron prices to crash in the coming months. Ofcourse, I posted the report and it did get good readership from the panic striken investors but at heart the conclusions are hypothetical and speculative.
The several news items that have appeared on the market crashes have also not been able to point out why the crash has really occured apart from a panic reaction from investors. When Dhirubhai Ambani, the Chairman of Reliance Industries Ltd died, it lead to a crash in prices of RIL although there was nothing going to happen to the fundamentals of the company in the long run.
The Platts reported that the International coal markets were mixed on news of Friday's catastrophic earthquake in Japan, even as many participants tried to assess the potential effects of the disaster and resulting tsunamis.Japan imported about 165 million short tons of coal in 2009, making it the largest importer of both steam and metallurgical coal, according to estimates by the International Energy Agency. The quake comes at a time when Pacific coal markets have been particularly sensitive because of flooding and a recent typhoon that has curtailed Australian exports. "Coal market participants in the US and abroad said Friday that it was simply too soon to know how the earthquake might affect the country's coal-importing and coal-burning infrastructure."
A report in The Washington Post said that coal, natural gas prices may zoom as Japan shuts its nuclear reactors thereby forcing utilities there to use other fuel options to generate power while the closing down of refineries would mean import of fuel from nearby Asian refineries to make up for the deficit thereby giving support to an otherwise falling crude oil.
Coal accounted for 22% of the country's total energy consumption in 2007, ranking it second behind oil, according to the US Energy Information Administration. Japanese steel producers said that at least one plant had been unaffected by the quake; while others had been closed, were operating at reduced rates or could not be reached by telephone. Lower steel production could mean that coking coal is redirected to other countries, though reconstruction efforts would eventually increase the amount of domestic consumption, market sources said. The country is second only to China in both pig iron and crude steel production, according to Platts.
"That steel production will have to resurface elsewhere around the world and the coking coal demand that would have been taken by Japan would be supplemented by other countries," according to Ted O'Brien quoted in the Platts news analysis.
"European paraxylene traders said Friday it was still unclear what impact the 8.9 magnitude earthquake that struck Japan earlier in the day would have on the Northwest European paraxylene market.In Asia, market reaction was swift. Asian PX prices surged $51.50 Friday, ending the week at $1,651.50/mt FOB South Korea and $1,671.50/mt CFR Taiwan/China after the earthquake was reported," another Platts analysis said.
The greatest impact of the Tsunami was seen in Rubber prices that crashed across nations as Tokyo Commodity Exchange's (TOCOM) rubber futures is a benchmark for global prices while Japan is the third largest oil consumer whose daily consumption of 4.4 mn barrels of oil is three times more than 1.6 mn barrels per day produced by Libya, the third largest producer of oil in North Africa. It will take a few more days for the markets and the analysts to get to grips with the impact of Tsunami until then it will be hypothetical and speculative moves that will drive the markets. One analysis pointed out that market crash occured as large investors moved cash out of the markets in response to the Tsunami. Invesotrs can only keep their fingers crossed and hope things would return to normaly based on fundamentals.
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