Commodity prices have started to shake off the negative impact of Japan’s tragedy as reconstruction efforts get underway, according to a Scotiabank Report.

Global energy markets stand to gain as Japan turns to imported liquefied natural gas (LNG) and crude oil to offset the shortfall in its nuclear capacity, the report said.

“Re-construction in Japan will boost demand and prices for lumber, OSB [oriented strandboard] and plywood, especially from Canada’s West Coast, steel and metals over the next six-to-twelve months,” said Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank.

The still-unresolved nuclear incident at the Fukushima-Daiichi nuclear plant near Sendai and the resultant loss of backup electricity due to partial meltdown of fuel rods is likely to have the largest impact on overall commodity markets, said Mohr.

In the near-term, Japan has arranged increased LNG imports for April mostly to supply power to the Tokyo metropolitan area as well as the Northeast from a variety of sources including Qatar and Brunei.

“Perhaps the more lasting impact of the incident at the Fukushima-Daiichi Nuclear Power plant, a 40-year old facility with some outdated technology, will be to trigger a re-examination of nuclear safety procedures and reactor technologies around the world and to slow the development of nuclear power,” said Mohr.

The likely shift to imported LNG and a shift to natural gas-fired power generation in the United States and parts of Europe, over the medium-term, may provide support to projects such as Kitimat LNG, a producer-owned LNG export facility in British Columbia with access to major LNG markets in Asia-Pacific including South Korea, China and Japan, the largest importer of LNG in the world.

“However, China, India, South Korea and Russia—the major growth markets for nuclear energy, which had planned to add 105.2 GWe of nuclear power or 66% of the world total prior to the incident—will almost certainly move ahead with significant nuclear expansion,” said Mohr. “Not to do so would enormously raise the cost of fossil fuels (oil, LNG and steam coal) for consumers worldwide in the coming decade and limit the containment of greenhouse gas emissions.”

Overall, the Fukushima-Daiichi incident will likely delay rather than derail the nuclear renaissance, she added.

The rebuilding process in Japan will likely drive demand for forest products, with many companies in B.C. and Alberta already specializing in high-quality, Japanese-specification J-grade lumber.

“While it will take several months for Japan to map out its plans for re-construction, the Japanese government has already contacted wooden prefabrication plants in Japan to quickly build a large volume of factory-built homes as temporary dwellings in devastated areas. Construction of permanent homes will come later,” said Mohr.

As expected, Japanese orders are bumping up demand for J-grade lumber and OSB, needed to rebuild 70,000 buildings (commercial, residential and institutional) that were damaged in the country’s biggest crisis since World War II.

Reconstruction costs are estimated to reach ¥25 trillion ($301 billion), about 6% of Japan’s total economic output in 2010. And as Japan has a Wood First policy for government-funded or sponsored buildings, Canada can expect a sizable amount of that to buy Canadian forest products as Japans spends the next five years—according to the World Bank—rebuilding and recovering from the damage.