Metals Demand in Japan May Tumble as Quake Damage, Power Cuts Halt Plants

Demand for industrial metals in Japan, Asia’s biggest importer of aluminum, may decline as factories shut because of damage or power shortages after the country’s strongest earthquake on record, analysts said.

“You’ve got some production decline and certainly a consumption decline as well,” Jim Lennon, a senior analyst at Macquarie Group Ltd., said in a phone interview today. Japan is the world’s second-largest buyer of copper ore after China.

The northern Tohoku region most affected by the 8.9- magnitude temblor and subsequent tsunami represents about 8 percent of gross domestic product, and is host to factories making products from cars to beer. It also has energy infrastructure including a nuclear power plant that the government said was at risk of a meltdown after an explosion.

Factory shutdowns, power cuts and the impact on consumer confidence may hurt Japan’s GDP for months, while contributing to growth later as the country rebuilds plants, homes and infrastructure, economists said.

“Demand for base metals, such as copper, zinc and nickel, may drop in the short term,” said Kim Gyung Jung, an analyst at Eugene Investment & Securities Co. in Seoul, recalling a similar impact from the 6.9-magnitude earthquake in Kobe in 1995.

Aluminum for three-month delivery dropped 1.6 percent to end at $2,545 a metric ton in London on Friday after falling as much as 3.3 percent. Copper ended little changed at $9,190 a metric ton after dropping as much as 2.2 percent.

Crucial Point

The temblor hit as the economy was pulling out of a contraction in the fourth quarter. Recent data showed factory orders increased 4.2 percent from December, the biggest jump in five months, industrial production rose in January and the unemployment rate held that month at 4.9 percent, matching the lowest level since March 2009.

Companies from Sony Corp., Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. to beermaker Sapporo Holdings Ltd. and refiner JX Nippon Oil & Energy Corp. shut facilities in northern Japan. Cosmo Oil Co. had a refinery fire in Chiba, outside Tokyo, while Tokyo Electric Power Co. battled to avert a meltdown to a nuclear power station 220 kilometers north of the capital.

Nippon Steel Corp., the country’s biggest maker, suspended operations at its Kamaishi plant, the company said today. Sumitomo Metal Industries Ltd., the third largest, said March 11 blast furnace operations at its Kashima steel plant were halted.

Mitsui, Mitsubishi

Copper and zinc producers have also announced shutdowns. Mitsubishi Materials Corp., the third-largest copper maker, halted its 258,000-metric ton Onahama smelter in Fukushima prefecture, and Mitsui Mining & Smelting Co., the top zinc producer, shut its 112,000-ton capacity Hachinohe smelter in Aomori prefecture, spokesmen said on Friday.

Some shipments of raw material for the smelters may be diverted to China or South Korea, said David Thurtell, an analyst at Citigroup Inc. in Singapore.

Consumption in Japan may take three to six months to recover as the country undertakes a widespread reconstruction program, said Macquarie’s Lennon.

“It’s not going to happen overnight,” he said.

To contact the reporter on this story: Jae Hur in Tokyo at Jhur1@bloomberg.net

To contact the editor responsible for this story: James Poole in Singapore at jpoole4@bloomberg.net

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