Global companies faced disruptions to operations after the earthquake and tsunami in Japan destroyed vital infrastructure.
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 and Sony falling 8% and 9%, 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 US 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% 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 number two 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% in Tokyo, while rival silicon wafter makers Sumco Corp ended flat in a Tokyo market that closed down 6,2%.
Spot prices for DRAM chips, mostly used in personal computers, 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 cellphone maker, said it was investigating the impact on supplies.
About 12% 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.
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 about 20% 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% of its output. In contrast, steel demand will rise for damage restoration.”
Nippon Steel, the world’s number four 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, the world’s number five steelmaker, halted production at a plant near Tokyo and number four-ranked Nippon Steel suspended operations at two small plants.
“If there is a 10% rise in steel plates, it can result in a 1,5% fall in the operating profit margin for shipbuilders,” said SK Securities analyst Lee Ji-hoon, adding roughly 15% 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% 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, a unit of AU Optronics, whose plant is situated near Sendai town, close to the epicentre of the quake.
US solar panel maker SunPower could be vulnerable to wafer supply disruption as it relies on M Setek for up to 20% of its supplies or about 200 megawatts, Credit Suisse said.
An AU spokesperson 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 spokesperson 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. - Reuters