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Mining impact of Japan’s earthquake

March 16, 2011

“Billions of dollars of uranium-mining investments in Australia could be at risk if explosions and radiation leaks at reactors in quake-hit Japan prompt governments to rethink plans to produce more nuclear power. With more than 30% of the world’s economically exploitable uranium reserves, Australia has a lucrative resource base as fears of climate change tilt governments away from fossil fuels and toward greater interest in nuclear power. But Friday’s massive earthquake in Japan is presenting miners like BHP Billiton with a major dilemma: press ahead with new uranium developments, or put them on ice until governments give a public vote of confidence in nuclear power.”

Source: Wall Street Journal, March 14 2011

“Exports of finished steel to Japan will rise in the coming months as the Asian nation rebuilds after the 9.0 magnitude earthquake, two senior Indian steel company executives said Tuesday. Economists estimate damages from the earthquake could run as high as 10 trillion yen and knock three percentage points off Japan’s gross domestic product growth this year.

‘It would be important to note that a lot of the wooden houses and structures traditionally found on Japan’s coastline may now be replaced with buildings made of steel and cement, as they would be better able to withstand the impact of a tsunami,’ Malay Mukherjee, chief executive of Essar Steel Ltd., said on the sidelines of an industry event. He said the quake could lead to a reduction in steel exports from Japan.”

Source: Wall Street Journal, March 15 2011

Observations:

  • Several nuclear power stations in Japan were severely damaged by the earthquake in Japan. The risk of damage in case of an earthquake, with potential risk of a meltdown in several reactors was known by the government as early as 2008.
  • In the very short term both demand and supply of steel in Japan drop, as power outages are expected and focus is on disaster relief and nuclear safety. Once rebuilding commences the Japanese demand for steel will certainly show a one-off increase.

Implications:

  • The disaster in Japan will not only refuel the discussion on the use of nuclear energy in general and nuclear power plants in earthquake zones in particular, but will also trigger the discussion of the corporate responsibility of miners in supplying the fuel for the power plants. Miners will most likely not change their standpoint that the uranium can and should be used responsibly, but public action against any player in the nuclear power value chain should not be ruled out.
  • The spike in Japanese steel demand will cause the global markets of steel, coal and iron ore to shift. Japanese steel makers will most likely be able to step up production to fulfill domestic demand. As a result the country will import more coal and ore, but will export less steel. All of this will result in upward pressure for the seaborne prices.

©2011 | Wilfred Visser | thebusinessofmining.com

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