The devastation in Japan has focused new attention on supply chain issues and the impact of the partial collapse of that country's manufacturing infrastructure on both Japanese imports and exports. A headline in The New York Times labeled the Japanese crisis a "Stress Test for the Global Supply Chain."
On top of the natural disasters of earthquake and tsunami, the atomic disaster is pressuring the Japanese electrical grid to the point of rolling blackouts that cut industrial production; hence, the effects on energy technology markets worldwide. According to several analyses, Japan is a key supplier of critical energy materials, components, and machinery as well as a consumer of the same goods; the scale of the market disruption caused by the natural events may not be known for months.
Writing in The New Republic, industrial analyst Eamonn Fingleton notes "a problem that may confront many key global manufacturing industries on a much larger scale in the wake of the Japanese earthquake: shortages of highly rarefied but critical materials, components, and capital goods." Fingleton, author of the book In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity, writes, "A good example is semiconductor-grade silicon—a highly purified not-an-atom-out-of-place material that only a couple of companies worldwide can make. The leading suppliers, Shin-Etsu and Sumco, are both Japanese and, as far as I can tell, there are no significant suppliers left in either Europe or America. If any of their factories or suppliers have been affected by the earthquake, the entire global electronics industry will be quickly feel the impact."
Washington Post business columnist Steven Pearlstein observed that "the impact of disasters is magnified by globalization. The troubles in northern Japan, for example, are beginning to ripple through global supply chains, creating bottlenecks and shortages in dozens of industries. The way globalization increases economic efficiency is by leveraging the advantages of scale and specialization. Yet the bigger and more concentrated production becomes, the more vulnerable it becomes to disruption."
Solar photovoltaic markets may be among the first affected by events in Japan. Electricity supply shortages and rolling blackouts could drive up prices for polysilicon, according to Ahmar Zaman, a Piper Jaffray analyst. Japan, he says, "accounts for 2 GW of expected 2011 demand, over 19,000 metric tons of polysilicon capacity, 650 MW of wafer capacity, 2.2 GW of cell capacity and 2.5 GW of module capacity." Zaman said he expects supply chain disruptions for polysilicon will drive up prices." Vishal Shah of Barclays Capital predicted that the events in Japan would be positive for solar power developers. "We see the Japanese nuclear development as an incremental positive for the [solar] sector," he said. "The bull case for nuclear policy could now become weaker and this could indirectly benefit solar/wind policy development, in our view."
The global nuclear industry was quickly affected by events in Japan. Within days, stocks for major nuclear vendors were declining. When German Chancellor Angela Merkel said Germany would close seven nuclear plants for assessments of the impact of the Japanese accident, shares of German nuclear utilities E.ON and RWE promptly fell. The BBC also reported double-digit declines in uranium mining company shares. Uranium futures prices also plummeted in the immediate aftermath of the country's nuclear woes and their impact on the prospects for nuclear power worldwide.
On the swing side of the energy markets, liquefied natural gas (LNG) companies saw increases in their share prices, the BBC reported. Japan, with limited domestic energy supplies, is already a major buyer of LNG and is likely to use gas-fired generation to replace lost nuclear capacity. According to Dow Jones, gas futures in mid-March, for April delivery, quickly rose to $4/million Btu on the New York Mercantile Exchange following the Japanese events.
The economic impacts of the catastrophe in Japan are taking place in the midst of increasing concern in the U.S. about access to critical minerals needed for high-tech endeavors, including new energy technologies. In late February, the American Physical Society and the Materials Research Society (APS-MRS) produced a new report, "Energy Critical Elements," outlining the problem and discussing supply and demand options. The report followed a Department of Energy study earlier in the winter, described in the March/April issue of MANAGING POWER.
The APS-MRS study followed the filing of a bill in the U.S. Senate directing the Interior Department's U.S. Geological Survey to mount a broad inquiry into critical minerals and the global supply chain. The key sponsor, Sen. Mark Udall (D-Colo.), said on introduction of the measure, "With the importance of these materials for defense and the development of a robust clean-energy industry, it is now vital that we rebuild our domestic rare-earths industry."
In the study, the APS and MRS said, "Energy-related systems are typically materials intensive." It added that "energy critical elements" (ECEs) are not only rare earths, but they also "potentially include more than a dozen other chemical elements," which "share common issues and should be considered together in developing policies to promote smooth and rapid deployment of desirable technologies."
The report made five recommendations:
- The White House Office of Science and Technology Policy should establish a subcommittee of the existing National Science and Technology Council to examine the production and use of these elements and "coordinate the federal response."
- The federal government should create a "'Principal Statistical Agency' with survey enforcement authority" to regularly survey emerging energy technologies and supply chain issues associated with supplying the elements needed to develop the technologies.
- The federal government should begin a "research and development effort focused on energy-critical elements and possible substitutes that can enhance vital aspects of the supply chain, including geological deposit modeling, mineral extraction and processing, material characterization and substitution, utilization, manufacturing, recycling, and life-cycle analysis."
- ECEs should get a federal "crucial materials" designation to inform consumers of their value.
- The government should not "establish non-defense-related economic stockpiles of ECEs with the exception of one element: helium."
As the materials boffins were recommending against stockpiles, the U.S. Magnetic Materials Association, the Washington-based lobbying group for users of industrial magnets, was calling on the government to establish a strategic rare earth stockpile. The organization said its recommendation was a direct response to the APS-MRS report. The magnets industry called for a stockpile that would store "materials that are critical to both economic and national security." Magnets are important in emerging energy technologies, according to the lobbying group, established in 2006, including wind power and electric vehicles.
—Kennedy Maize is MANAGING POWER's executive editor.