DEMAND for Australia’s key exports to Japan — coal, iron ore and liquefied natural gas — is set to rise in the wake of the massive earthquake destruction, with prices to benefit from supply tightness.
Analysts are widely tipping the LNG sector to receive the biggest lift from the disaster, as Japan may increase gas-fired power stations following the explosions at the Fukushima nuclear plant.
Deutsche Bank analyst John Hirjee said if Japan shut down its nuclear reactors, LNG and coal would probably be the alternative fuel replacements.
“Clearly that is a potential benefit for those projects in the region that can supply over and above what they have got,” he said.
“Australia will be one of the main beneficiaries of that.”
Woodside’s shares jumped 40c to $42.20 yesterday, as the market looked to LNG plays.
The oil giant’s North West Shelf operation produces about 16 million tonnes of LNG a year, of which 12-13 million tonnes goes to Japan, with the balance snapped up by China.
“At the margin, the NWS does sell some spot cargoes, which may mean they could be sold to Japan, but there isn’t a lot of flexibility there for them to massively add volumes to Japan because of the existing production capacity,” Mr Hirjee said.
“What will happen is a lot of traded LNG will be offered to Japan. Britain’s BG Group is one of the largest LNG traders in the world, so they will probably assist in bringing cargoes from their portfolio to Japan.
“There may also be some assistance provided by some of the other customers and there has been early talk that some of the Korean and Chinese customers may defer their cargoes in favour of helping the Japanese out.”
Australia’s coal sector is also set to benefit, with demand for thermal coal likely to increase in the short term and coking coal in the long term, when the rebuild starts.
Analysts expect a further boost to the prices, which were already elevated because the sector was dealing with supply issues following the Queensland floods in January.
Quarterly coal contract negotiations between major producers and Japanese steelmakers were already in the final stages and AngloAmerican has reportedly set a record coking coal price of $US330 a tonne.
Swiss mining giant Xstrata is believed to be in Japan to finalise coal contracts this week, but industry experts said it could be slightly delayed because of the disaster.
“Coal supply was already going to be tight because of the recovery from the Queensland floods, so this disaster could keep both coal markets tighter for longer than analysts were thinking,” one analyst said.