The economic setback after the Japanese earthquake disaster

March 15, 2011 by timbercommunity

Last days the stock markets are falling after all destructive problems in the world’s third-largest economy. For the suffering Japanese people everyone is dreading tomorrow's news.  The economic setback after the strong Japanese earthquake disaster is difficult to measure for the forest and paper industry; and there are many questionmarks what will happen in the long run?

Short term - Mood shifts change trends in the financial markets
Tokyo Stock Exchange fell on Monday and had the largest decline in over two years since the earthquake that shook the country has increased concern that economic growth will stagnate. Nikkei 225 fell 6.2 percent on Monday and10.55% on Tuesday 15th of March.

If we assume that the news controls the stock market and compare with September 11:th attack the American Stock Exchange fell the first week after the attack by 14 percent. The New York economy declined by 27.2 billion dollars in the last three months of 2001 and insurance companies lost $ 40 billion and around 130 000 jobs were lost.

The Japanese disaster is much worse than 11:th of September in many aspects. Many more deaths are reported. No one knows yet how many people have died in the Japanese disaster but reports say more than ten thousand people. Insurers and reinsurers will have to compensate damages of at least $ 35 billion in Japan according to Valoronline which is a low estimation since the nuclear accidents and the earthquake has seriously shattered infrastructure. Bank of Japan will raise a total equivalent to 183 billion dollars of liquidity into the financial system to stabilize the markets.

How will Japan's damaged nuclear power plants affect the domestic industry? The question is how the Japanese production capabilities and energy supply are solved in the long run. Many auto plants across Japan have shut down, at least temporarily, wrote auto analyst Paul Newton of IHS Global Insight, who described the situation as fluid in Washington post. Sony, Japan's largest exporter of consumer electronics, suspended the operation in ten factories. 

Short-term effect on paper
Japan is a mayor importer and exporter of paper and wood products.

Oji Paper is perhaps the best known Japanese company in the pulp and paper industry and - The company had no pressrelease at the english corporate website today how production of goods are disrupted but on the Japanese website Oji Paper had a notice about the Northeast Pacific Ocean earthquake and a notice concerning damage. Oji Paper has 86 production sites throughout Japan they have forestry operations worldwide and  currently possesses the highest market share in the Thai paper industry. 

Housing market in the long run
The infrastructure and buildings will be at the forefront of reconstruction and investment. Wood buildings are safer than stone house in an earthquake. Wooden houses, however, are safer in an earthquake according to an article in ATL - (agriculture business newspaper). A house that has a wooden handle of the shaking without collapse. In recent years there has however worries for the Japanese homebuyers and the demand have been low to pay higher prices for prefabricated wood houses.

Canada and US exports 
In Canada, just 2.4% of the exports went to Japan over the last year. Weyerhaeuser is one of North America's largest exporters of logs to Japan. Last year, more than $ 1 billion of Weyerhaeuser's revenue came from sales to Japan writes Forest Talk. Canfor is another example of company that has invested heavily in the Japanese market after the U.S. housing market collapse in the US and Monday to record high in one year. Also Western Forest Products rose from 73 cent to 88 cent (20,5%).

UPM
Do the Japanese import lumber from the USA, or Canada, or somewhere else cheaper? The finnish paper company UPM is annother company that have been contacted by Japanese buyers and clients according to News agency Startel. The Japanese portfolio is relatively small according to a spokesman from the company.