Risk aversion flares as Japan nuclear crisis grows

Industrial raw materials fell across the board on Tuesday, with crude oil down by around 2%, as risk aversion gripped financial markets after Japan warned of higher radioactive levels following fresh explosions at an earthquake-stricken nuclear plant.

Japan's prime minister warned that radioactive levels had become "significantly" higher around the damaged nuclear power plant after explosions at two reactors, and the French embassy said a low level radioactive wind could reach Tokyo within hours.

"People are going for risk aversion, so investors are liquidating assets and positions including in crude oil and gold," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.

"This is just the first reaction after Fukushima, so it's more about sentiment. The nuclear plant issue is an unexpected, very serious additional factor for the market because we don't have any experience on that," he said.

Prime Minister Naoto Kan urged people within 30 km (18 miles) of the facility north of Tokyo to remain indoors, underscoring the dramatic worsening of Japan's nuclear crisis, the world's most serious since the Chernobyl disaster in Ukraine in 1986.

As concern about the crippling economic impact of the nuclear and earthquake disasters mounted, Japanese stocks plunged 13% - heading for their biggest drop since 1987 -- compounding a slide of 7.6% the day before. The two-day fall has wiped USD 720 billion off the market.

Gold slid more than 1% as declines in stock markets forced speculators to sell bullion to cover losses, and also dragged silver down by 3%.

April Brent fell USD 1.79 to USD 111.88 a barrel at 0543 GMT after trading as low as USD 111.19. Prices on Monday touched a two-week low of USD 111.16, down more than 7% from a two-and-half year high of USD 119.79 on February 24. US crude for April dropped USD 1.81 to $99.38, and earlier hit USD 98.67.

Oil markets were also eyeing developments in the Middle East, where Saudi Arabia sent troops into Bahrain on Monday to help calm weeks of protests by the Shi'ite Muslim majority, a move opponents of the Sunni ruling family on the island state called a declaration of war.

But the main focus everywhere else was Japan. Three-month copper on the London Metal Exchange reversed early gains to fall 1% to USD 9,098 a tonne. But Shanghai's most active copper futures contract was flat after a three-month low of 68,250 yuan hit in the previous session.

"It is a kneejerk reaction," said a Shanghai-based trader.

"But we are not pessimistic about copper, considering the demand during the reconstruction after the earthquake."

Grains futures fell more than 1%. Japan is the world's biggest importer of corn and third-largest buyer of soybeans, the main ingredients in animal feed. It is also the world's fourth-biggest wheat importer, and plans to buy 4.96 million tonnes of milling wheat in the year to March 31.

Unsurprisingly, uranium prices have fallen. Industry specialist UX Consulting said the spot price of U3O8 dropped by 10% last week.

In bulk commodities, Japanese steel mills are diverting metallurgical coal cargoes due to plant outages. Iron ore and thermal coal may also need to be sent elsewhere after damage to ports and production facilities, possibly to South Korea and China.