Implications of the Japan Crisis

Tuesday, March 15, 2011
In the aftermath of the devastating earthquake that has hit Japan, fears are growing over the potential for radiation leaks from damaged nuclear plants. Equity markets have been hit while FFA prices have also sustained significant losses. With the situation still unfolding, the longer term impact of the disaster on commodity markets is unclear, although some initial conclusions can be drawn.
In the short term, shipping has been disrupted with 13 ports reported by Reuters to have closed, with some of these unlikely to be operational for several months or even years. Initial assessments by Macquarie and the Steel Index put production at five large steel mills in the worst-affected region at risk, accounting for 15-18 million tonnes (Mt) of annualized steel production capacity. That could potentially remove around 20-25 Mt of iron ore and 9-10 Mt of coking coal demand.
In the longer term, reconstruction should boost demand for steel with potential for significant increases in raw material imports. Whether the additional steel demand is met entirely by Japanese production or partially by China, Korea and/or Taiwan, the overall effect should be a boost to iron ore and coking coal imports into the region. Capesize vessel demand would therefore be the biggest beneficiary, with the Panamax sector boosted by extra coking coal demand alongside additional Handysize and Supramax employment on steel products, timber and grain trades. Should additional cargoes be required into China, this would entail more spot market chartering activity, in contrast to Japan’s traditional reliance on longer term freight contracts.
Meanwhile the nuclear crisis has led to rolling blackouts. Out of Japan’s 54 nuclear reactors, 11 are reported closed. The Fukushima Daiichi nuclear plant has so far suffered explosions at three of its reactors and it will almost certainly be decommissioned once the crisis is over. Japan depends on nuclear power for almost a third of its total energy needs. Recent parallels can be drawn with the closure of the Kashiwazaki-Kariwa nuclear plant for 21 months after the 2007 earthquake in Niigata prefecture and, perhaps more significantly, the temporary shutdown in 2003 of 17 nuclear power stations for emergency safety inspections after it was revealed that inspection reports had been falsified.
The 2003 closures led to an increased reliance on both oil and coal-fired power generation. There was an unexpected spike in Japan’s steam coal imports (including anthracite) in July and August 2003 to more than 15 Mt per month compared to an average of 14 Mt per month during the 1h03. This was a key factor in causing the chronic shortage of dry bulk tonnage at that time that led to the record-breaking surge in freight rates.
The rolling programme of emergency inspections in the months that followed led to a very gradual reopening of nuclear plants, which helped to ensure that Japan’s steam coal demand grew strongly. Combined steam coal and anthracite imports jumped from 112.0 Mt in 2003 to 123.6 Mt in 2004. Improved economic conditions in 2010 resulted in the annual import total rising by 14.1 Mt over 2009 to 131.2 Mt. Beyond the inevitable short-term disruptions, there is potential for further strong rises in steam coal demand. This could be particularly significant in the longer term if the latest tragic developments cause a rethink in Japan of the viability of nuclear generation as a key part of the country’s energy mix.

Source: Freight Investor Services (FIS)

Maritime Today

The Maritime Industry's original and most viewed E-News Service

Maritime Reporter November 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds


Windrock Names Kelleher Global Business Development Manager

Edward P. Kelleher will be assuming the new role of Global Business Development Manager – Diesel, effective December 1st.   In this role, Mr. Kelleher will be

Canada to Aid Developing Nations Fight Climate Change

Canada will provide aid to developing countries to combat climate change, Prime Minister Justin Trudeau announced on Friday ahead of talks on global warming,

Sandra Weakens to Tropical Storm off Mexico's Coast

Hurricane Sandra weakened to a tropical storm on Friday and was expected to continue losing strength as it approached Mexico's Pacific coast, the U.S. National Hurricane Center (NHC) said.

Maritime Standards Naval Architecture Navigation Offshore Oil Pipelines Pod Propulsion Salvage Ship Electronics Ship Repair Ship Simulators
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.0904 sec (11 req/sec)