Mar.15 NEW YORK (Dow Jones)--Copper prices avoided the brunt of Tuesday's commodity selloff, as traders looked beyond the imminent nuclear-reactor crisis to Japan's reconstruction.
"Copper is the first thing they'll need to come back and rebuild," said Charles Nedoss, senior market strategist at Olympus Futures.
May copper, which has the biggest number of contracts outstanding, ended 1.2% lower at $4.1370 a pound. Thinly traded March copper also fell by 1.2%, settling down 4.85 cents to $4.1250 a pound on the Comex division of the New York Mercantile Exchange.
In contrast, crude oil prices dropped 4%, while many grains hit their daily loss limit. Wheat fell more than 7%.
While the investor exodus from risky assets drove the selloff in the asset class, short-term concerns about Japan's ability to import also played a role. Japan is the biggest customer for U.S. corn and pork exports, as well as a key consumer of soybeans wheat and beef.
A 9.0-magnitude earthquake and tsunami struck northern Japan Friday, decimating the country's east coast and damaging three of the six reactors at the Fukushima Daiichi nuclear complex. Further explosions at the complex were reported Tuesday as authorities fought to keep the reactors from melting down.
Market analysts expect an initial drop in Japan's metal demand, as key infrastructure and consumers will be slow to return to the market.
Once the imminent crisis passes, however, the rebuilding effort will require Japan to purchase bigger volumes of industrial metals than it otherwise would as it seeks copper to replace electrical power cables damaged by the tsunami. Aluminum will be needed for household appliances, zinc for galvanized steel used in commercial and residential construction and iron ore, molybdenum and nickel to make stainless steel for larger infrastructure.
Japan is one of world's five biggest metal consumers and has few natural resources.
"Everything from the power grid, housing construction, autos to consumer appliances are going to be required, and all the base metals markets are going to benefit from the rebuilding effort," said Max Layton, deputy head of commodities at Macquarie Securities Group.
Traders are already positioning themselves. The number of contracts for September delivery rose by 10% on Monday. "Some people are viewing this as a buying opportunity," said Bill O'Neill, a principal with LOGIC Advisors.
Deutsche Bank said Japan's copper consumption may drop by as much as 50,000 metric tons over three months as Japanese industrial production recovers from the damage.
"This could then be offset by demand of three times this magnitude," as reconstruction projects take off, Duetsche Bank said, adding that copper and zinc, which are widely used in infrastructure and construction, are most likely to benefit from the reconstruction efforts.