Power Shortages To Impact Japanese Car Production For Months To Come

Even if Japan’s nuclear power plants will be brought under control, even if roads, rails and ports are back up, the Japanese car industry will have to deal with a more serious problem: Blackouts.

On Monday, Tokyo Electric Power, or Tepco, will start turning off the power for three hours each to selected areas. This will happen once, in some areas twice per day. When the schedule was put up on Tepco’s website, the server crashed. That was just the beginning of the problems.

Tepco had to shut down reactors at two nuclear power plants as well as five conventional power plants. Tepco is currently 10 million kilowatts short of demand.

“Japanese manufacturers, already hit by Friday’s earthquake in their own operations, will now have to deal with the rolling blackouts planned for greater Tokyo starting Monday,” writes The Nikkei [sub]. “Combined with the disruption of distribution networks, the outage is set to further hamper the companies’ ability to secure supplies of parts and materials.”

Power outages don’t just mean a three hour stop of work. Electric furnaces, used for castings, have to be brought down before the outage and back up afterwards, a long process. When China had power outages a few years ago, it severely affected the industry.

Steel plants of Nippon Steel & Sumikin Stainless Steel are currently shut down. Even if the facilities come back up, “blackouts would force them to shut down, likely impacting automakers and electronics manufacturers,” says The Nikkei [sub]. Tokyo Steel suspended operations at Tepco’s request and may have to shut their plant down if rolling blackouts continue.

Tepco plans to conduct the rolling blackouts through the end of April. Says the Nikkei:

“But the firm will be unable to meet demand in the summer, when air conditioner use pushes up demand as much as 50% from current levels, even if it receives power from other utilities and brings all its fossil-fuel-burning plants on-stream. The company could thus have to keep rationing in place over a prolonged period, forcing manufacturers to reduce output or move production to other regions.”

When Reuters asked Takuji Okubo, chief Japan economist at Societe Generale, about the biggest problem the Japanese industry faces, Okubo answered: “I would say the biggest risk is power.”

The Japanese auto industry already has been evacuating Japan. The current developments will most likely hasten their departure. Oddly enough, the yen is expected to rise sharply on Monday, and the dollar is expected to drop. “Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction,” writes Reuters. The wire service sees “the dollar plummeting versus the yen on Monday” and expects “a sharp slide in Treasuries since U.S. government bonds are a favorite asset of Japanese investors.” Japan is the second-biggest holder of U.S. government debt and has nearly $900 billion in dollar reserves. Some of these reserves will likely be used for rebuilding.