Global commodities markets were plunged into chaos yesterday as traders across the world struggled with the economic implications of the devastating Japanese earthquake and tsunami.
Against a backdrop of a six per cent fall in the Nikkei index and the Bank of Japan's launch of a 15 trillion yen (£114bn) quantitative easing programme, commodities prices from copper to corn softened over concerns at the impact of the devastation.
But with two nuclear power stations in danger of suffering a meltdown and a fifth of Japan's power generation offline, markets are pricing in a surge of demand for replacement energy supplies.
Gas prices soared across the world yesterday as analysts forecast Japanese liquefied natural gas (LNG) demand could rise by as much as 12 billion cubic metres per year. In Britain, gas for next winter shot up by nearly 7.5 per cent to its highest price since November 2008, while US gas for April delivery rallied by 3.8 per cent in New York. Coal prices also shot up, with researchers forecasting anything from 5 million to 30 million extra tonnes of demand. In Europe, coal derivatives rose to a two-year high.
Meanwhile, the oil price dropped as commodities traders bet that a slump in demand from closed Japanese refineries would offset higher imports to replace nuclear power.
Oil was not the only commodity to fall. Although Nippon Steel and JFE – Japan's two largest steel makers – both restarted their blast furnaces yesterday, iron ore prices dropped to a three-month low. And with factories across Japan closed by power cuts, aluminium and copper also fell and rubber slumped 13 per cent. Corn, coffee, sugar and lumber also all lost ground.
Investors' jitters continued to boost the price of gold, the traditional safe haven. After a record high on concerns about the Middle East last week, gold had softened. But it saw another half-per cent boost yesterday in response to the turmoil in Japan. Silver also benefited from the uncertainty.