But first, stagnant industrial activity and power blackouts that have disrupted industrial production and halted production at copper and aluminium smelters and refineries are likely to erode demand.
“The reconstruction effort will involve using a good range of different metals — aluminium and steel in particular — which will also likely help copper prices,” said Christin Tuxen, an analyst at Danske. “That is likely to be a few months out, maybe a year or two ahead.”
The earthquake and tsunami that followed has crippled roads, rail and ports across much of Japan’s northeast.
Japan, the world’s third-largest commodities consumer, does not produce many raw materials, but imports raw ores for conversion into refined metals. Its refined copper output was about 1.52 million tons last fiscal year, about 7 percent of global output.
Estimates of the economic impact are only now starting to emerge, but once reconstruction gets underway demand for metals, and prices, could surge.
“Once they get into the reconstruction phase it will be bullish because obviously they have to replace all the structures,” said Lars Steffenson, managing director at Ebullio Capital Management, said.
“And they are going to be spending a lot more money on strengthening buildings and tsunami defenses.”
Benchmark copper on the London Metal Exchange traded at $9,167 by 1515 GMT from $9,190 a ton at the close on Friday, when the industrial metal hit a three-month low of $8,992 a ton after the earthquake struck.
To soothe market nerves, the Bank of Japan offered a combined 15 trillion yen ($183 billion) to the banking system.
Power cuts have halted operations at Japan’s top copper smelter, Pan Pacific Copper Co’s Hitachi, as well as No. 3 Mitsubishi Materials Corp’s Onahama copper smelter. Two zinc smelters have also been shut for checks.
Leading Japanese steelmakers halted production at some plants due to the blackouts, although analysts said overcapacity elsewhere may curb any impact on steel prices. Japan’s steel exports hit a record 43 million tons in 2010.
“Short term, it will be fairly negative because we’re seeing a lot of producers and car manufacturers (which use aluminium) halting production,” Tuxen said.
Toyota Motor Co said it would suspend production at all its domestic car plants until at least March 16, reducing output by at least 40,000 vehicles. Honda said its Japan plants would remain shut to March 20.
But once industrial activity picks up, electricity prices could rise too and add to production costs.
The earthquake cut nuclear electricity supplies by around 9,700 megawatts (MW), or about a fifth of capacity, and Japan is seen importing liquefied natural gas and low-sulphur fuels to make up the shortfall.
“We could see electricity shifting away from nuclear to natural gas which might be more expensive,” Tuxen said, singling out production costs for aluminium smelters which are highly energy intensive.
The power cut-induced production stoppages may be temporary, but the disruption caused by logistical and infrastructure damage could take longer to fix and ultimately means good demand for industrial metals.
“If you have to do a lot of rebuilding you are going to need copper,” said Stephen Briggs, an analyst at BNP Paribas. “So you might have a bit of demand lost today because some of the car companies have closed plants, but that will be made up by reconstruction.”
(Additional reporting by Pratima Desai; editing by William Hardy)
