The impact of the 8.9-magnitude earthquake in Japan undoubtedly has had — and will continue to have — broad ramifications across commodity markets, currency markets and stock markets, not to mention the bigger story involving radiation leaks from two nuclear plants (which we will cover in a follow-up post). In the meantime, we’ll attempt to cover a few angles with regard to this earthquake and tsunami as they specifically relate to global metals markets. We’ll examine both individual metal sectors and suggest readers take a look at Spend Matters’ accompanying coverage of the earthquake from a strategic sourcing perspective.
Based on our rather cursory analysis, we believe steel, copper and zinc production warrant the closest examination based upon Japan’s market share for each of those three metals. Japan remains a primary importer of key rare earth metals and does not produce much if any primary aluminum.
Let’s turn to steel. Japan produced nearly 90 million tons of steel in 2009. The country boasts two mills in the world’s list of top 10 steel producers – JFE and Nippon Steel. According to Friday’s Wall Street Journal, Tim Hard of The Steel Index has said, “five major steel mills have halted production including Nippon Steel Corp.’s Muroran and Kimitsu works, JFE Holdings Inc.’s Chiba and Keihin plants and Sumitomo Metal Industries Ltd.’s Kashima works in Tokyo Bay–have sustained structural damage and their port facilities are inoperable. However, JFE’s two plants should come back on-line over the weekend. Nippon has also come back on stream, though one plant in northern Japan remains down, according to a Reuters story. The article goes on to discuss the potential impact of these closures on the sea-borne iron ore market as being somewhat minimal. We’d concur, but the impact of these production shut-downs could have many more serious long term ramifications as these firms produce a broad range of steel products, including very specialized products such as ECCS (a tinplate-derivative steel) and various other electrical steels along with galvanized steel, as examples. The two JFE plants, Chiba and Keihin, produce 8 million tons of steel annually. Sumitomo Metals currently has two blast furnaces down due to a fire at its Kashima facility.
In terms of copper production, though Japan does not have any copper mines among the “Top 20, according to The World Copper Handbook from the International Copper Study Group, Japan has the second-largest copper smelting capacity (2009 figures) with an 11 percent share after China’s 24 percent share of world copper production. According to an article from Reuters, Japan would have produced approximately 1.6 million tons of refined copper this year, or 7.6 percent of world output. Though the article speculated that most of Japan’s copper production escaped serious damage, two operations — one with 250,000 tons of capacity at the Onahama plant and an operation with 217,000 tons of capacity, Hitachi (both owned by Pan Pacific according to the story) — could be at risk. The Reuters article stated the Hitachi plant had stopped operations due to a power outage. In addition, Mitsubishi Material suspended operations at its Onahama copper smelter also because of a power outage.
Zinc production at Japan’s largest producer of the refined metal also closed its operations at its Hachinohe zinc smelter, according to the Reuters article. That plant produces 112,000 tons per year. Ironically, another report released in January of this year indicated the plant would be come off-line anyway from March 15 May 15 for planned maintenance (the company may have more than planned maintenance to manage). Japan represents the 29th largest country by zinc production, approximately 5 percent of annual world output with a total of 670,000 tons produced annually.
With the closure of four plants at Nissan, production stoppages at six Sony plants, three auto supplier plant shutdowns impacting Toyota, a production stoppage at three of Honda’s plants, all production stopped for Toyota along with power outages affecting companies such as GlaxoSmithKline, Sapporo Breweries and several others, we’re sure to see additional supply chain volatility.