JAPAN DISASTER: Economy may shrink on nuclear crisis - Moody's

21 March 2011 08:35  [Source: ICIS news]

SINGAPORE (ICIS)--Japan’s economy could shrink in the aftermath of the devastating earthquake and following nuclear crisis as the full, long-term impact on the petrochemicals industry remains unclear, analysts said on Monday.

“If the Japanese government falters in its efforts to contain the spread of radiation from Fukushima, a large drop in consumer confidence could ensue, with negative repercussions for the country's economy," Thomas Byrne, Moody's senior vice president, said in a note on Monday.

"If coupled with power shortages that create an extended delay of a resumption of production to pre-disaster levels, the country's full-year gross domestic product could contract," Byrne said.

However, the Japanese government has the fiscal and credit means to deal with the disaster, which could cost twice as much as the 1995 Kobe earthquake, he added.
Japan's economy contracted an annualised 1.3% in the fourth quarter of 2010.

The downside risks of the natural disasters and the ongoing nuclear crisis in Fukushima have increased over the past week for the country's economy, sovereign credit, banking, insurance, and non-financial corporate sectors, the note said.

Despite the higher risks, a quick containment of the nuclear crisis could see Japan’s economic growth resuming in the second half the year as investors were expected to remain confident with Japanese bonds, it said.

The worst-affected sectors will be insurance and utilities, with others experiencing a limited impact, the note said.

While the full impact of the natural disasters is not yet certain, it could be a while before Mitsubishi Chemicals’ Kashima cracker and Maruzen Petrochemicals’ Chiba cracker restart operations, Citi analysts said in a research note on 18 March

These facilities have a combined capacity of 1.45m tonnes/year, or 18% of Japan’s total ethylene capacity, the note said.

Around 1.8m tonnes/year of ethylene capacity is still shut and olefins shipments from Japan this month have been cancelled, according to the note.

The direct impact for US petrochemicals producers is limited, although the Japan supply dislocation could cause ethylene prices to go up in the “near term”, the report added.

The death toll from the earthquake and tsunami on 11 March has left more than 21,000 people dead or missing, according to data from Japan’s National Police Agency.

Worries over radiation leaks from the Fukushima nuclear facility still remain as operators rush to restore power to water pumps needed to cool overheated fuel rods at several nuclear reactors.

Workers at the plant have connected power cables to all of the facility’s reactors as of Monday afternoon, a Reuters report said, but it is still unclear when all of the water pumps could be restarted.

The reduced power supply from the facility has forced the plant’s operator, Tokyo Electric (TEPCO) to implement planned power outages in the areas surrounding the quake-damaged facility.

Numerous production sites for high-purity chemicals, insulation materials, and other advanced materials used by the semiconductor and electronics industries are located around the areas directly affected by the earthquake and in areas covered by the planned power outages, according to a Barclays Capital research note.

Click here for the latest news on the Japan disaster


By: Nurluqman Suratman



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