Additional Details on Effects from Earthquake, Tsunami, Power Outages

03/15/2011 - Goldman Sachs summarizes information from company statements and news reports regarding damages to steel production facilities in Japan following the March earthquake and tsunami. The company is estimating approximately 23% of capacity has received some level of damages or production curtailment.

By Rajeev Das, Goldman Sachs

Published 14 Mar 2011 5:06:51 pm IST — Today is the first day back to business after the M9.0 earthquake, which occurred on March 11, 2011 in northeastern Japan. Additional information from company statements and news reports is summarized below. Since many companies are still trying to ensure safety of their employees and assess damage to their capacities, visibility remains low.

So far, we have learned on major steel mills that:

Operations at SMI's [Sumitomo Metal Industry’s] Kashima Plant have been completely suspended. Chairman Hiroshi Shimozuma commented today that their furnaces have been severely damaged, and they do not know when they can resume operations again.

Contrary to reports, JFE's East Japan Steel Works did not experience any fire on Friday, March 11, 2011. They have resumed operations at East Japan Steel Works, but they have stopped production lines to comply with power conservation requests made by TEPCO. The furnaces are also running at minimum utilization.

Nippon Steel's Kamaishi Works has stopped production due to flood damage. Its ports have also been damaged, and the company does not know when it can resume operations. NSC's Tokyo Works is complying with the power conservation measures by stopping production during requested hours. NSC's Kimitsu Works has resumed operations, although effects from the power outage are not clear.

Please see the table below for further details. We calculate 23% of total steelmaking capacity in Japan may have been affected by the earthquakes.

We offer our deepest sympathy to all those whose lives have been altered by last week's earthquake.

Steel Capacities affected by the Earthquake
Company name	Plant	Crude steel capacity (mt)	Products	Damages / Situation
Nippon Steel	Kimitsu Works*	12.00	HRC, CRC, heavy plates, electric sheets, etc.	Operations have resumed, but may experience stoppages from power supply shortage.
	Kamishi Works	—	Wire rods	Water damages seen in the steel plant, and production has been stopped. Damages also seen in ports. Timing of recovery not known. Production may be moved to Kimitsu.
	Tokyo Works	—	Seamless pipes	Production stopped during scheduled power outage.
JFE Steel	East Japan Steel Works	8.00	HRC, CRC, heavy plates, welded pipes, etc.	No fire occurred on 3/11 (news reports were erroneous). Production now stopped to cooperate with power conservation. BFs running at minimum utilization.
JFE Bars & Shapes	Sendai	0.80	Shapes, bar products	Seems to have incurred flooding damage. More than 500 employees fled to the plant’s management center. JFE is still assessing damages.
JFE Bars & Shapes	Kashima	—	Shapes, bar products	Checking facilities
Tohoku Steel (JFE Steel Group)	Sendai	0.26	Rebars	Seems to have incurred flooding damage. JFE is still assessing damages.
JFE Container	Chiba	—	N/A	Liquidation of grounds around the plant. Still assessing damages.
Sumitomo Metals	Kashima Steel Works	9.00	HRC, CRC, heavy plates, large shapes, welded plates, etc.	Serious damages incurred to furnaces and operations suspended. The company has announced that it may take some time to resume operations.
Nippon Steel Sumitomo Stainless	Kashima	—	Stainless steel	Operations stopped after the earthquake and checking facilities
Kobe Steel	Moka	—	Aluminum Copper	Still checking for damages. Operations suspended.
Kobe Steel	Fujisawa	—	Welded products	Operations resumed. May be affected by power supply restrictions.
Tokyo Steel	Utsunomiya Plant	—	Shapes	Decided to suspend operations until March 18^th to cooperate with power conservation. Will check facilities for any damages in the meantime.
Itoh Steel	Ishinomaki	0.20	Rebars, joints, etc.	Flooding damage. Experiencing power outages.
Itoh Steel		—	Rebars, joints, etc.	Electricity reception facilities experiencing trouble. Operations stopped.
Pacific Metals		0.04	Ferro-nickel	Flooding damages. Must drain water first to inspect for damage. Experiencing power outages.
Tokyo Tekko		0.17	Rebars	Flooding damage. Experiencing power outages.
Total		30.48
% of total capacity		23%

Source: Sangyo Shimbun, Bloomberg, Nikkei Shimbun, Company data, Goldman Sachs Research estimates.

*NSC has announced that Kimitsu Works has resumed operation. However, it is located in an area where TEPCO has announced to conduct planned power outages, though the company has not announced any plans for production suspensions. We have included Kimitsu in this list to be conservative.

Many production capacities along the northeastern Pacific coast have incurred damage (by earthquakes, tsunamis and power outages).

Legal and Certification Disclosures — We, Rajeev Das and Nana Hasegawa, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see above.

Reposted with permission of Goldman Sachs.

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Additional Details on Effects from Earthquake, Tsunami, Power Outages