post-earthquake recovery

Industrial life in Japan is slowly recovering from the effects of last month’s earthquake and tsunamis.  The Financial Times, for example, is reporting that the Big Three automakers of Japan, Toyota, Nissan and Honda, plan to have all their factories back in operation by a week from today.  Output will only be about half the normal rate, as the industry continues to deal with component shortages.

autos and technology

We’ll begin to learn more about the effect of the disaster on the technology industry as March quarter 2011 earnings reporting season opens up in the US this week.

Everything I’ve heard/read about the auto and IT industries, however, is generally in accord with my initial thoughts.  That is, that the auto industry would be more severely affected than IT, that initial reports would overestimate damage, that the main shortage items would likely be less well-known and lower tech parts.

Electric power is proving to be the most important shortage commodity, as well as the one least able to be alleviated by field-expedient workarounds.

new shortage areas

A number of items that I hadn’t thought about are also proving to be in shortage, namely:

–according to the Asahi Shimbun (newspaper), two of the six plants manufacturing cigarettes owned by Japan Tobacco, the dominant maker in Japan, suffered heavy damage in the earthquake.  One of the two cigarette filter plants the company runs was flooded by a tsunami.  Production at the other is being interrupted by rolling electric power blackouts.  JT is hoping to reopen its earthquake-damaged plants today at 25% of capacity.

I don’t own tobacco stocks and I don’t particularly care for the industry.  But the shortage of cigarettes is a serious issue in Japan, a country where half the adult males and 10% of the adult females smoke (maybe I should write “are addicted” instead of “smoke”).  AS suggests that smokers are significantly increasing their usage as a means of coping with post-earthquake stress.

Therefore, the earthquake is providing an unusually favorable chance for foreign manufacturers, BAT and Phillip Morris, to get distribution.  Both are airlifting large quantities of cigarettes into the country.

–the Yomuiri Shimbun reports that distribution of bottled water, in great demand because of fears of water contamination, is being slowed by earthquake damage done to key bottle caps manufacturing plants run by Japan Crown Cork and by Nihon Yamamura Glass.  Nationwide output, coming from factories in western Japan, is only at about 60% of pre-earthquake levels.

–an ink shortage is causing postponement of scheduled comic book production.  The plant responsible for 100% of Japan’s production of diisobutylene, a key ingredient in making ink has stopped production due to earthquake damage.

For investors who are willing to hold tobacco stocks, Japan is a big enough market that market share shifts there might be enough to affect the stocks of industry participants.  The main significance of the other recently reported shortage items is likely that everyday life is unlikely to return to normal in Japan for a long time to come.  The fact that these difficulties are surfacing predominantly in consumer goods suggests to me that my assumption that the Japanese government will give capital goods and export-oriented industries priority over consumer businesses in use of scarce resources.