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A shift away from nuclear power towards coal is the buzz among mining executives and traders

The consequences of Japan’s multifaceted disaster – the earthquake, tsunami and now its nuclear crisis – appear to be widening by the day.

Now its impact on thermal coal is beginning to slowly unfold. Although the outlook for the commodity is bearish in the very short term as Japan’s economy slows down and, with it, demand for coal-fired power stations, it looks set to emerge as a top beneficiary of the disaster.

Japan is the world’s largest importer of thermal coal and its demand therefore influences the $100bn physical market and the much bigger derivatives market for the commodity.

Over the short term, coal demand for prompt delivery has fallen in Japan, as economic activity and electricity consumption slows. Moreover, several thermal power plants and import terminals have been damaged, forcing utilities such as Tokyo Electric Power Co and Tohoku Electric to ask miners to defer cargoes.

The slowdown, coupled with little appetite for foreign coal in China at the moment as domestic prices are low, is holding down demand and prices in the Pacific basin. The price in the Australian port of Newcastle, which sets a benchmark for the Asian region, is holding at about $128 per tonne, below the 2½-year high set in January of $135.10 a tonne.

Emmanuel Fages, coal analyst at Société Générale in Paris, says that beyond the short-term impact, he anticipates greater coal imports to replace the nuclear plants that have been shut down in Japan. “So the impact could be bearish for the prompt contracts as long as port operations do not resume, then turn bullish,” he says. […]

The demand for coal in Europe is set to rise after Germany temporarily idles a third of its nuclear capacity in the wake of the disaster in Fukushima, forcing utilities there to turn to other fossil fuels to bridge the gap. Coal prices in the Atlantic basin have risen nearly 10 per cent since the earthquake struck Japan, hitting the highest level since October 2008. In Rotterdam, coal rose on Thursday to $132.40 a tonne.

Beyond the next few months, the potential for a shift away from nuclear power towards coal is the buzz among mining executives and traders. “Over the longer term we see it as very bullish for coal as the ‘anti-nuke’ groups gain greater voice now worldwide, particularly in Europe,” a top coal trader says, echoing a widely held view.

As such, some see current events as another sign that the commodity, already reinvigorated by strong demand from developing countries such as China and India, is again the King Coal that once dominated raw materials markets.

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