How to Rebuild Japan and More Economic Impact

Eduardo Kausel is a professor of civil and environmental engineering at MIT has written an opinion on how Japan should rebuild.

This is the second devastating tsunami to hit the Far East in just over six years. Isn't it time some lessons were learned? Shouldn't schools and hospitals, for instance, now be rebuilt on higher ground? Shouldn't entire coastal settlements be relocated further inland? These are the sort of questions the country's civil engineers and infrastructure planners will be asking themselves as the rebuilding process gets underway.

I hope the Japanese authorities act responsibly, and if necessary, relocate and redesign entire towns and villages, as well as future nuclear power stations. We know now that you can't tsunami-proof a town or building; all you can do is move it out of the way.

In the short term, damage assessment is likely to focus on two very different areas. First, structural engineers will be sent into modern earthquake-proofed buildings to examine the impact of the quake on the quake-proofing technology.

Just because a building is still standing doesn't mean it hasn't been damaged. While certain elements of quake-proofing (such as diagonal bracing) are designed to help the building move with the shifting ground, others (such as viscous dampers and shock absorbers) are designed to dissipate the earthquake's energy. Damaged components will have to be replaced or, where the associated cost is too high, the building will need to be demolished. But that's not a failure for quake-proofing. It's a success: the building withstood the quake. For decades, that's been the primary aim of quake-proofing—preserving human life and avoiding extensive damage during moderate but oft-recurring earthquakes, not constructing buildings that can survive unscathed even after a monster earthquake like this one.

The second area of damage assessment will be on the devastation wrought by the tsunami. Traditional, low-lying Japanese houses and buildings are mostly of low cost and quick to build, as befits a country that has lived with the threat of earthquakes for centuries. So theoretically it's quite possible that many of the worst-hit areas could be rebuilt quickly. But before they are, the huge loss of life has to be taken into consideration.

Economic Impact of Reconstruction on natural gas, coal and metals

Russians look at the catastrophe in Japan and the major impact on global markets.

The nuclear production capacity Japan lost as a result of the earthquake is equivalent to 13 billion cubic meters of annual gas consumption, or 9 percent of total Gazprom exports, according to VTB Capital estimates. VTB Capital also said that the drop in Libyan gas supplies to Europe amounts to approximately 9 billion cubic metres annually, or 6 percent of Gazprom exports. Given these recent events, Russian gas exports could grow by 10 billion-15 billion cubic meters (7 to 10 percent) this year, while Gazprom could see revenue increase 3 to 5 percent.

Japan remains the world’s biggest importer of coal transported by sea. “Our current projections envision a steady deficit on the thermal coal market in the period from 2011 to 2015, therefore if Japan needs 10 percent more coal in the near future, this would have very serious consequences for thermal coal prices,” said VTB Capital analyst Viktor Belski, “We believe that the coal industry is close to working at full capacity, therefore liquefied natural gas would most likely be the main fuel that power stations would use to make up for lost output in the coming weeks.”

Russian metals companies will have to wait for Japan to start rebuilding. Even though Russian metals companies do not directly export their steel to Japan, they could benefit from an increase in price on this commodity. “Japan was a major steel exporter with total exports of 43.4 million tons (15-16 percent of the global market). We believe that there could be a very substantial decrease in the volume of Japanese steel exports (perhaps by 10-20 percent), which would be an extremely positive factor for prices on the regional market. The main question is how much Japanese exports will decline in the next six to twelve months,” said VTB Capital’s Belski. Global steel production reached a new record of approximately 126 million tons in January 2011, so there is no spare production capacity to use in response to the sharp increase in demand for steel in Japan, which in 2012 and 2013 could grow by 5-10 percent, or 6 million-12 million tonnes per year.

Copper is another metal whose price dynamics could be affected by the events in Japan. Transportation and electronics account for 43 percent of total copper consumption, Investcafe analyst Maksim Loboda said. “Japan had a 14 percent share of total global electronics production in 2010. The country accounts for 20 percent of global automobile output. Very rough estimates indicate that if these two industries are out of commission for one month, demand for metal will decline by 40,000 tons in the transport sector and 75,000 tons in electronics.” There will also be a major spike in demand for copper as the country recovers from the earthquake and begins building new infrastructure, restoring power and resumes manufacturing automobiles and electronics.