U.S. Companies Rush to Fill Japan's Supply Gap

After Japan's Renesas Electronics, the world's leading maker of chips used in car navigation systems, saw production capacity plummet due to Japan's Mar. 11 quake, Steve Sanghi, chief executive officer of Chandler (Ariz.)-based Microchip Technology (MCHP), sent a letter to customers. He promised to ramp up chip production to fill the gap. He also had a tip for companies trying to line up microcontrollers: Buy now or pay more later. He warned of looming backlogs and recommended that customers line up at least 12 weeks' worth of chips in advance—far more than required during normal industry conditions. Advised Sanghi: "Those who commit backlog [orders] to us secure the supply first."

With many Japanese companies operating at reduced capacity, U.S. companies are racing to meet higher demand for everything from fish meal used in shrimp farming to caustic soda that goes into making soap and paper. "It's a wake-up call for companies about the risk of a global supply chain: 'Hello, now we have a huge disruption that's going to be very costly,' " says Clyde V. Prestowitz Jr., president of the Economic Strategy Institute, which promotes U.S.-based manufacturing. "Business is going to be good for guys who have maintained a presence in the U.S."

Beyond opportunities for companies such as Caterpillar (CAT), whose heavy equipment will be needed for Japan's rebuilding, lost Japanese production means a lot of supplier business is now up for grabs. In 2010, Japanese companies sold $120.3 billion worth of goods in the U.S., according to the Commerce Dept. Interest in U.S. food exports also is rising in Japan after the government there said on Mar. 26 that 99 products tested in Tokyo and five prefectures, including milk and vegetables, were found to be contaminated by radiation from the Fukushima Dai-Ichi nuclear plant. Shortages in Japan are boosting prices at Hallmark Fisheries in Charleston, Ore. Black cod fetches about $9.30 a pound, $1 more than last December, according to Production Manager Scott Adams. "I'm not trying to make money off of someone else's misfortune, but Japanese love their seafood," Adams says. "They are going to want fish they know is caught from a safe area."

Tyson Foods (TSN), the largest U.S. meat processor, saw a jump in Japanese demand after the quake, as well as requests to fill orders there more quickly, Chief Operating Officer Jim Lochner said on Mar. 30. Smithfield Foods (SFD), the world's largest pork processor, also has seen an uptick in Japanese demand for fresh pork, according to Chief Financial Officer Bo Manly. "To us, that's signaling they have very little meat at a retail level," Manly says.

Japan's nuclear reactor woes may also boost North American liquefied natural gas exports, as governments worldwide review their energy needs, says Steven Farris, chairman and CEO of energy producer Apache (APA). "Given the unfortunate circumstances ... that gas becomes more interesting to the market than it was probably three months ago," he told investors on Mar. 28.

With Japanese plants forced to idle up to a quarter of their capacity to produce paraxylene, which is used in plastic beverage bottles, and caustic soda, U.S. chemical producers such as Dow Chemical (DOW) and Occidental Petroleum (OXY) may benefit, says Mark Eramo, executive vice-president of consultant Chemical Market Associates in Houston. Says Hassan Ahmed, an analyst at Alembic Global Advisors in New York: "If you are a large producer not in Japan, you'll benefit from the pricing spike."

The bottom line: With plant closures and power cutbacks limiting production in earthquake-ravaged Japan, American suppliers could see new business.

    Before it's here, it's on the Bloomberg Terminal.