Japanese temblor may lower demand for uranium

Japan has been terribly shaken by a devastating earthquake and tsunami that hit the country on Friday, resulting in loss of lives and property as also massive human suffering. Commodity markets are closely watching developments following the natural calamity.

It is reported that as many as 20 reactors at four power generation plants have been shut down. There are concerns over damage to nuclear installations such as the Fukushima nuclear power plant. The damage can potentially affect reactor cooling systems. Damage to highly radioactive waste storage is also feared.

Japanese media reported that around a fifth of annual nuclear power capacity or about 5 per cent of national total generating capacity (including hydro. thermal and gas) is not operating as a result.

Uranium consumed by these reactors represents approximately 2.0 to 2.5 per cent of global demand, experts pointed out, adding that while reactors are down, some demand (estimated at 100tU) for uranium could be lost every month.

Loss of nuclear power generation is likely to be made up, albeit partially, by thermal coal. So, thermal coal demand may rise this year with additional requirement of 20-30 million tonnes (mt), experts said. This will have price implication. Additionally, about one million tonnes of coal stocks may have been affected.

Proximity of steel mills to the earthquake means that steel production capacity may be affected which could be in the region of 15-18 million tonnes annualised. This can potentially equate to 20-25 million tons of iron ore and 9-10 million tonnes of coking coal.

Sumitomo's five million tonnes a year Kashima steel mill is near the epicentre and has reportedly taken a direct hit. Others in the Tokyo Bay may be less affected. As of now, the extent of damage is unclear though. Tsunami may have damaged inventory (possibly 2 mt of iron ore and 1 mt met coal) and rendered unusable.

One must hasten to add that the loss of steel production in Japan is unlikely to have any significant impact on global steel supplies as much of the reduction is Japan may be met from other origins.

Some Japanese copper and zinc smelters have halted production. All ports have reportedly been closed.

Crude oil prices fell on the news of the tragedy in Japan fearing loss of oil demand. It is estimated tentatively that one million barrel per day of refining capacity may have been lost. But there is no consensus on how the market will react in the days ahead. The possibility of Japan using more oil to make up for loss of nuclear energy is also real. The market needs a close watch.

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