Macroeconomic indicators - Tsunami likely to affect global economy

Monday, 14 Mar 2011

Observers said that the earthquake and tsunami that ravaged Japan will likely have a short term effect on the global economy, shutting down Japanese factories, ports and oil refineries, but it won't derail the economic recovery.

The 8.9 magnitude quake in Japan, the world's third largest oil consuming country, forced the closure of all of the country's ports and five of its large steel mills. Car companies such as Nissan said they were closing factories until Sunday and airlines canceled flights to the country.

Ms Diane Swonk, chief economist at Mesirow Financial, said that it may seem that world events such as the turmoil in the Middle East and the Japanese tsunami are conspiring to offset the economic recovery, but the reality is that the recovery is slow because businesses are not redeploying profits rapidly. Continuing cuts to local and state governments in the US are further adding to uncertainty.

She said that "The reality is, if the economy was growing 8% to 9%, these things would be little more than noise, but they get magnified in a recovery that is very uneven. When you're on thin ice, you don't need any extra headwinds."

Still, there will be some short-term implications. Airlines have canceled flights to Japan. Production was halted at two Honda plants and at two Toyota plants, and Nissan Motor Co halted production at five plants.

Damage to steel mills might last longer. If the steel mills remain closed, demand for iron ore will drop by 20 million tons, said Jeffrey Landsberg, managing director of Commodore Research & Consultancy in New York. That will primarily affect the Australian iron ore industry and the miners there. It could also create demand for more steel from China.

Further, shipping companies might redirect their vessels as they wait to see if aftershocks and further tsunamis come after Friday's quake. In addition, if Japan's nuclear plants are shut for an extended period of time, the country will need to consume more coal, a commodity that is already at historically high prices.

Still, Mr Landsberg said, these events are relatively small in a global perspective. He said that "This is more than anything, a temporary event. I don't think it’s that long lasting impact on global recovery." (sourced:LaTimes)

Global supply chain rattled by Japan quake, tsunami

Mon Mar 14, 2011 8:55am GMT

* High tech components, steelmakers among suppliers affected
* Rolling power blackouts likely to disrupt output for some time
* Some producers talking to alternative suppliers
* Shares of Toyota, Sony fall more than 7 pct

By Miyoung Kim and Clare Jim

SEOUL/TAIPEI, March 14 (Reuters) - Global companies from semiconductor makers to shipbuilders faced disruptions to operations after the earthquake and tsunami in Japan destroyed vital infrastructure and knocked out factories supplying everything from high-tech components to steel.

Thousands of people have been killed and millions have been left without water, electricity, homes or heat after Friday's 8.9 magnitude quake triggered a massive tsunami which tore across a wide swathe of coastline north of Tokyo.

The earthquake has forced many firms to suspend production and shares in some of Japan's biggest companies tumbled on Monday, with Toyota Corp and Sony Corp falling 8 percent and 9 percent, respectively.

Plant closures and production outages from Japan's host of high-tech companies were among the biggest threats to the global supply chain, analysts said.

"Japan remains critical to the global tech food chain," analysts at CLSA said in a report. "Beyond damage to facilities, supply chain disruptions driven by road-port-power outages are key factors to watch," CLSA said, estimating a fifth of all global technology products are made in Japan.

Korean shipbuilders and U.S. solar power companies were among other companies facing the threat of disruptions to supply, but with initial damage assessments still being made, companies and analysts said it was too early to accurately gauge how long disruptions might last.

Rolling power blackouts are likely to affect Tokyo and surrounding areas over the next few weeks, adding to the existing challenge of inspecting and repairing north Japan plants amid continuing aftershocks and the threat of major radiation leaks from damaged nuclear power plants.

KOREAN COMPANIES HIT

Japanese ports handling as much as 7 percent of the country's industrial output sustained major damage from the earthquake, with most seen out of operation for months.

Companies in neighbouring South Korea, which depend heavily on Japan supplies such as LCD glass, chip equipment, silicon wafers and other products to produce semiconductors, were some of the most affected.

Hynix Semiconductor , the world's No.2 memory chipmaker and a rival of Japan's quake-hit Toshiba Corp and Elpida Memory , said it was concerned the quake may weaken consumer demand further and disrupt supplies of chip components.

"It could give a boost to battered chip prices but that's a short-term impact from disrupted supplies by Japanese companies," said Kim Min-chul, chief financial officer at Hynix. "Longer-term we are more concerned about the quake reducing overall consumer demand and disrupting supplies of chip components and equipment, which could interrupt our production as well."

Hynix shares surged almost 9 percent on expectations of a short-term boost to chip prices and reduced competition, while shares in Toshiba, a conglomerate whose products include semiconductors and nuclear reactors, dived 16 percent.

Toshiba, which supplies more than a third of the NAND memory chips used worldwide in devices such as Apple's hot-selling iPad, said it was starting the process of restarting a chip factory in Iwate, northern Japan.

Shares of Shin-Etsu fell 6.7 percent in Tokyo, while rival silicon wafter makers Sumco Corp ended flat in a Tokyo market that closed down 6.2 percent.

Spot prices for DRAM chips, mostly used in personal computers (PC), had started rising in China, chip price tracker DRAMExChange said.

"Especially for PC and system manufactures, they need to be more proactive in DRAM inventory for the upcoming peak season," it said in a note.

Nokia , the world's largest mobile phone maker, said it was investigating the impact on supplies.

About 12 percent of components used by Nokia were sourced in Japanese yen but the amount of Japanese components was likely larger in its phones as Nokia has recently renegotiated its supplier contracts in Japan to cut risks from swings in the value of the yen.

"Until we have concrete information to share, it would be inappropriate to speculate on the possible impact to Nokia," a spokesman said.

STEEL, SOLAR

Companies reliant on Japanese steel such as South Korean shipbuilders were also expected to face supply constraints or higher prices due to disruptions caused by the quake and its aftermath.

South Korea houses the world's top three shipbuilders -- Hyundai Heavy Industries , Daewoo Shipbuilding and Marine and Samsung Heavy Industries .

"The earthquake has reportedly affected around 20 percent of the Japanese steel production capacity," said Kim Hyun-tae, an analyst at Hyundai Securities in Seoul. "It will disrupt production in Japan, one of the major steel producers exporting 40 percent of its output. In contrast, steel demand will rise for damage restoration."

Nippon Steel Corp , the world's No.4 steelmaker, said on Sunday it resumed shipments from all its steel plants except its Kaimishi facility in northern Japan. Rival JFE Holdings said on Monday it was forced to stop shipments at one plant near Tokyo due to a power outage.

On Monday, JFE Steel Corp , the world's No.5 steelmaker, halted production at a plant near Tokyo and No.4-ranked Nippon Steel suspended operations at two small plants.

"If there is a 10 percent rise in steel plates, it can result in a 1.5 percent fall in the operating profit margin for shipbuilders," said SK Securities analyst Lee Ji-hoon, adding roughly 15 percent of steel plate supplies for Korean shipbuilders come from Japan.

Korean steel maker POSCO was expected to benefit from tighter supplies and pressure on prices. Its shares rose almost 9 percent in Seoul.

The earthquake also raised risks of lower production from Japanese manufacturers of polysilicon and wafers -- materials found in solar panels that convert sunlight into electricity.

Credit Suisse expects supply problems at solar wafer maker M. Setek Co, a unit of AU Optronics , whose plant is situated near Sendai town, close to the epicenter of the quake.

US solar panel maker SunPower Corp could be vulnerable to wafer supply disruption as it relies on M. Setek for up to 20 percent of its supplies or about 200 megawatts, Credit Suisse said.

An AU spokesman said initial assessment at the M. Setek plant showed no major damage but it was unclear when production would resume.

Taiwan's TSMC , the world's largest contract maker of semiconductors, said there was no immediate threat to supplies.

"For raw materials like raw wafers, gases and chemicals and spare parts, we have enough inventories to keep things running for at least 30 days," said TSMC spokesman Michael Kramer.

Other high tech producers including Taiwanese smartphone make HTC said operations and components supply had not been affected but they would be talking to alternative suppliers and monitoring the situation in Japan. (Additional reporting by Hyunjoo Jin and Ju-min Park in SEOUL, Tarmo Virki in HELSINKI and Leonora Walet in HONG KONG; Writing by Lincoln Feast; Editing by Anshuman Daga and Dean Yates, sourced Reuters)

Tags :Korean companies hit, Toshiba, Hynix, chipmaker, Sumco Corp, Nippon Steel, JFE, POSCO, Credit Suisse,

Developments after major Japan earthquake

Sun Mar 13, 2011 4:47am GMT

TOKYO, March 13 (Reuters) - Following are main developments after an 8.9 magnitude earthquake that struck northeast Japan on Friday and set off a tsunami.

- More than 1,800 people likely dead or missing from the quake and tsunami, Kyodo news agency says.

- Kyodo reports 10,000 people in one town unreachable.

* Tokyo Electric Power Company (TEPCO) says radiation levels at the Fukushima Daiichi nuclear power plant have risen above the safety limit but says this posed no "immediate threat" to human health. An explosion blew the roof off the plant, but authorities had said radiation levels were lessening.

* Chief Cabinet Secretary Yukio Edano says efforts to eliminate radiation risks focus on air being being vented out of the reactor and water being supplied to it.

- Evacuation ordered of 110,000 from 20-km (12-mile) radius around the Fukushima Daiichi nuclear power plant, 30,000 from 10-km (6-mile) radius around nearby Fukushima Daini plant. Kyodo says 300,000 evacuated overall, 5.5 million without power.

* Jiji news agency says a further 19 people may have been exposed to radiation from the reactor. The nuclear safety agency had earlier said up to 160 people may have been exposed.

- Nuclear safety agency rates the incident a 4 on the 1 to 7 International Nuclear and Radiological Event Scale, less serious than Three Mile Island, which was a 5, and Chernobyl at 7.
- Quake triggers tsunami up to 10 metres (30 feet). Waves swept away homes, crops, vehicles and submerged farmland.

- Bank of Japan to hold policy meeting on Monday. The central bank vows to ensure financial market stability.

- Toyota Motor Co to suspend operations at all 12 factories on Monday.

- Total insured loss could be up to $15 billion, equity analysts covering the industry say.

- Disaster sends oil, metals, and grain prices sliding on fears over its impact on demand, deepening their biggest decline in months; yen rises broadly on risk aversion by Japanese investors and expectations of repatriations by Japan's insurance companies; oil prices slide more than $3 a barrel.

- Tokyo Stock Exchange to trade as normal on Monday. (Tokyo bureau; World Desk Asia, Singapore +65 6870 3815)