The Japanese supply chain problems as a result of the earthquake, tsunami, and reactor crisis are “more serious” than Citi analysts originally imagined, according to a new note from the firm.
The problem is that a decline in Japanese exports will have knock-on effects throughout Asia, a producers are in need of items mainly manufactured in Japan.
From Citi analyst Johanna Chua (emphasis ours):
Reduction of JP’s productive capacity may cause higher prices of inputs/final goods of items where JP is a significant supplier until production can be ameliorated. On the growth front, we could see production of goods reliant on Japanese inputs without sufficient inventories temporarily stall, such as electronics (our analysts believe issues in the technology supply chain could last around 1-3 months), autos, and shipbuilding (to the extent these rely on Japanese steel and auto parts). As JP’s exports of these products will also likely suffer, Asian countries that are also net exporters of similar products would have offsetting benefits from both gains in pricing and market share.
A big loser here, as we mentioned before, is Taiwan. But Thailand is not far behind, as it relies on auto related imports for its domestic production sector.
From Johanna Chua:
Thailand looks relatively more reliant on Japanese imports of key inputs such as electronics (30% of total imports), iron & steel (38%), vehicle parts (63%), and to a lesser extent, chemicals (24%).
Note Taiwan, Thailand, and the Philippines reliance on machinery imports from Japan.