Earthquake Effect on Metals Muted

"Massive quake results in mixed metals prices; base metals to gain down the road."

The massive earthquake that hit Japan early Friday added to some short-term pressure on base metals, but will be a supportive influence down the road.

For now, analysts said, it could be one more drain on economic growth. But farther into the future, the quake will mean reconstruction that requires commodities such as copper and aluminum.

Analysts said they see a more limited impact from the quake on gold. Initially, some say, there could be selling not because the quake is somehow inherently bearish for the metal, but simply because some investors may need to raise cash to cover margin calls in other markets. Down the road, they say, the quake is likely to have little impact as the focus instead returns to other factors such as currencies, geopolitical tensions and Europe’s ongoing debt saga.

The reaction by the metals markets so far have been somewhat muted, several observers said.

Still, the quake added to a list of factors creating uncertainty about the economy and thus demand for base metals, said Robin Bhar, senior metals analyst with Credit Agricole CIB. The list includes euro-zone debt issues, as well as civil unrest in Libya and worries this could spread elsewhere in the region, pushing oil prices up and in turn hurting economic growth.

Base metals on the London Metal Exchange were weaker as the New York trading morning began. As of 10:54 a.m. EST, May copper was $0.345 lower at $4.1630 per pound, recovering after it earlier hit a $4.0860 low that was its weakest level since mid-December.

In coming quarters, however, the quake is likely to mean more demand for copper. When big earthquake hit the Japanese city of Kobe in 2007, Bhar said, a pick-up in demand began about six months later.

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