"Japan factory" ceases production of global supply chain "red light"

Earthquakes, tsunamis, fires, nuclear leaks, power outages, the 9th-level earthquake that struck Japan on March 11 and the secondary disasters it caused, hit the production operations of Japanese companies. As of the 14th, eight Japanese automakers such as Toyota, Honda, Nissan, Mitsubishi, Hino and Daihatsu have announced that they will temporarily close their factories in Japan. Nippon Steel Corporation, Japan's largest steel company, announced that its steel plant in Kamaishi City, Iwate Prefecture, has been discontinued and is currently inspecting damage to boiler equipment. In addition, consumer electronics companies such as Sony, Hitachi, Toshiba and Matsushita have also closed factories in the disaster area.  

The industry believes that compared with the earthquake and tsunami, the impact of rotating power outages on Japanese companies' production activities will be more long-term and significant, and because Japanese companies are located in the upper end of each industry chain, some factories control the core components of well-known products. Production and technology, therefore, the crisis has also led to a "red light" in the global product supply chain.

Automobile industry suspension of production delay

Japan’s Minister of Economy, Trade and Industry, Haijiangtian Wanli, said on March 13 that power shortages forced power suppliers to temporarily limit electricity because several nuclear power plants stopped operating after a strong earthquake. The Ministry of Economy, Trade and Industry's Department of Resources and Energy said that the power outage plan is expected to last for several weeks. Among them, the power supply capacity of Tokyo Electric Power Company will drop by about 25% from the normal level by the end of the year.

Tokyo Electric Power Corporation accounts for about one-third of Japan's national power industry, and the power grid mainly covers 8 counties in Tokyo and surrounding areas. The Northeast Power Grid Company's power grid mainly covers the northern part of Honshu Island, Japan. Japan’s nuclear power accounts for about 30% of Japan’s domestic electricity supply. After the 11th strong earthquake, 11 of the 50 nuclear reactors across Japan have been shut down.

Toyota said on the 14th that all of its plants in Japan will be shut down until the 16th, and the suspension will result in the company's production of 40,000 cars. Hino Motors and Daihatsu Industries, which are part of the Toyota Group, also decided to suspend production until the 16th. Isuzu Motors also said on the same day that all factories in Japan will be shut down until the 18th.

People in the automotive industry believe that the power outages have a great impact on the Japanese auto industry. Japanese auto companies have implemented a just-in-time production system in order to achieve zero inventory, and the supply of parts due to power outages is lagging behind, which will inevitably disrupt production plans. Kyodo News quoted a senior local automaker as saying that the automaker could not resume production if the implementation plan for Tokyo’s planned power outage was uncertain.

It is also known that Toyota has more than 10 assembly plants and component manufacturing plants in Miyagi and Iwate counties. The shutdown of the plant will inevitably affect all models exported to the US and other regions. At the same time, Honda's parts and components production of crankshafts and gearboxes were forced to close; Nissan's four domestic assembly plants were all closed, and more than 1,000 Nissan and Infiniti models to be shipped out of the ship were destroyed in the earthquake and tsunami; all five of Subaru's The factory was completely shut down. Japanese auto analysts believe that damage to infrastructure such as factories and ports will affect Japanese auto parts supply and vehicle export business in the short term.

Short-term steel demand shrinks

For Japanese steel companies that just turned around in 2010, the earthquake and blackouts have had a huge impact on the industry in the short term. Japan's crude steel and hot-rolled coils account for 8% and 7% of global production respectively. Japan's major steel companies have stopped production, which will lower the country's steel imports and global iron ore prices in the short term.

Nippon Steel said on the 13th that the company's ironmaking plant in Kamaishi will stop production for a long time, and the company is considering other plants to replace its production in response to shipping tasks. Affected by the tsunami, Nippon Steel is currently suspending shipments at all ironmaking plants in Japan. The company plans to resume shipments at all plants except Kamaishi after the tsunami warning is lifted. Sumitomo Metal Industries' blast furnace at the Kashima Steel Plant in Ibaraki Prefecture was damaged, and the blast furnace was shut down after the earthquake. A fire broke out in Japan’s JFE company’s steel plant in Chiba. These companies are unable to resume production in the short term.

The turn-off power outage after the earthquake is undoubtedly the "house leaks and night rains" for steel companies. According to analysts, the steel company's blast furnace is operated 24 hours in principle. After the power outage, it relies on the backup power generation facilities to maintain the operation with a certain load limit. Therefore, the long-term blackout has a great impact on the steel mill.

According to data from the Japan Iron and Steel Federation, from 2009 to 2010, the order quantity of steel in the affected areas accounted for about 30% of the total order of Japanese steel products. Therefore, the export of some steel products in Japan will be affected in the short term. From the perspective of the main product structure of the affected enterprises, the steel enterprises in the affected areas mainly produce plate and pipe. The reduction of steel production in the region will inevitably lead to tight supply of market resources, thus pushing up the prices of related products. However, in the medium and long term, post-disaster reconstruction requires a large amount of steel, and as the manufacturing industry gradually resumes work, steel demand will surge and increase the fluctuation of steel prices. In addition, due to the surge in scrap resources after the earthquake, it will also have an impact on international scrap prices.

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