Japan Mining Report 2011

The earthquake and tsunami that hit northern Japan in early March has had a devastating impact on the country's autos sector, with the effects being felt by the industry throughout the world. Japan's total new vehicle sales, including mini vehicles, fell 35% year-on-year (y-o-y) in March 2011, but although the 37% decline in sales of non-mini vehicles was the second biggest drop in history, the slowdown is not entirely a result of the disaster. March was the seventh consecutive month of lower sales y-o-y and continues the trend started when government incentives on car purchases were withdrawn.

A drop in sales was inevitable given the extent of the damage to some vehicle plants, but mostly to the facilities of suppliers based in the north where the disaster struck. This has significantly disrupted the supply chain. While some companies have re-opened vehicle plants, they do not expect to be back at full production levels for some time. Although we do expect replacement demand to factor into the year's sales by at least the second half of the year as rebuilding gains momentum, fulfilling that demand will require sufficient output.

BMI had initially expected sales to exceed 5mn in 2011, but this will now depend on how quickly carmakers can return to normal operation schedules. We have leaned on the side of caution in lowering our forecast markedly to show a decline in sales of 46% in 2011. While we would expect slower sales for the following months after the disaster, we believe replacement sales will begin to feed in by Q411 and into 2012.

While we had initially expected growth in import sales to be lower in 2011 in line with lower overall demand, we do now see some opportunities for imported brands if domestic carmakers cannot fulfill demand when consumers are in a position to buy again. The downside risk to this scenario is that foreign carmakers are also feeling the effects of the disrupted supply chain. However, one of the big stories in Q111 is a fourfold increase in imports of Japanese brands from overseas plants, led by a fourfold increase in March 2011. Total imports for Q111 were up by 30% y-o-y, which suggests the flexible globalised production of some domestic brands will come into play in fulfilling demand.