A massive earthquake in Japan pounded commodities markets on Friday, sending oil and metals prices skidding on worries about the impact on the world’s third largest consumer of commodities.
“This natural disaster could result in another sharp rise in risk aversion on markets and a continuation of yesterday’s correction on commodity markets,” said Commerzbank .
Japan was hit by a magnitude 8.8 earthquake, triggering a devastating 10-metre tsunami and shutting down ports and dozens of plants, including refineries, power plants and metals operations.
The oil market was among the hardest hit, giving up some of its recent big gains driven by unrest in the Middle East. Brent crude in recent weeks had shot up nearly 30 per cent since late November to 2-1/2 year highs.
Top Japanese refiner JX Nippon Oil & Energy Corp halted operations at three plants, while fire engulfed a storage tank at a unit of Cosmo Oil Co. The two make up about 20 per cent of the country’s total refining capacity.
The oil market was on edge, also watching for a planned day of demonstrations in Saudi Arabia, the world’s top oil exporter, and violence in Libya that has disrupted its oil exports.
ICE Brent crude fell 2.3 per cent to $112.82 a barrel by 1215 GMT. US crude for April delivery fell 2.7 per cent to $99.95.
Benchmark industrial metal copper tumbled, hit by not only the quake but by Chinese inflation data that fuelled concerns over demand from the top consumer of the metal.
“The earthquake is clearly risk-negative and you have seen continuation of selling that has been going on all week. But there are plenty of other things to make the world unhappy,” RBS global head of commodity and strategy Nick Moore said.
Japan only consumes about 5 per cent of the global copper and aluminium production against China’s 40 per cent share.
“The data that we have received from China was concerning; imports were sharply lower. People are also frightened about the negative impact that (high) oil prices may have on the economy…”, Moore said.
Three-month copper on the London Metal Exchange fell 1.7 per cent to $9,032.50 tonne and aluminium tumbled 2.9 per cent to $2,513 a tonnes.
All Japanese ports have closed, with discharging operations stopped, but in the longer term there may be a bullish impact, one analyst said.
“The damage will most probably cause a major requirement for building materials including steel and cement, and drive demand for feedstock such as iron ore and coal,” said Thomas Zwick , shipping analyst with broker Lorentzen & Stemoco.
The losses unnerved other commodities markets, such as grain which was already weak due to bearish stock estimates from the US government.
Benchmark May milling wheat shed 8.75 euros or 3.87 per cent to 217.50 euros a tonne.
Chicago wheat futures extended losses on Friday in the wake of the US Department of Agriculture’s increase in its wheat stock outlook and amid concerns about economic demand.
Coffee futures drifted further from this week’s 34-year high and cocoa also slipped, but both markets had underlying support.
Shortages of high-quality Colombia coffee beans helped staunch losses in that market while unrest in top cocoa producer Ivory Coast limited the downside in cocoa prices.
ICE May arabica coffee traded down 6.45 cents or 2.28 per cent at $2.7410 per lb and May cocoa fell $53, or 1.45 per cent to $3,395 a tonne.