$10B Quake Loss Foreseen In Japan

A large earthquake in Japan could inflict a financial loss exceeding $10 billion for the nation's chemical industry, according to a modeling firm.

The information is contained in a new study by ABSG Consulting Inc. (ABS Consulting) and its subsidiary, Oakland, Calif.-based Eqecat Inc.

According to the report, from a very large earthquake the chemical sector would have a loss equal to more than two years of pretax earnings, while the precision machinery and petroleum industries could suffer damage equal to more than one year of pretax earnings.

Dennis Kuzak, senior vice president of Eqecat, said in a statement that the study, to be presented at a Nov. 14 seminar in Tokyo, also shows that “the five other industry groups in the study also have significant loss exposure.”

The additional five groups are steel, nonferrous metals, automobiles, electronics and pharmaceuticals. Mr. Kuzak said “the study does not represent all Japanese industrial companies but demonstrates that the earnings impact for many industries can be very substantial.”

The study used Eqecat's JapanQuakeTM earthquake model to simulate the ground motions from earthquake events and to estimate the consequent industry damage, he said.

That model incorporates the most recent Japanese government findings of increased risk in portions of Japan, including the potential for a magnitude 8-plus earthquake caused by a rupture in the Tonankai deep sea ocean trenches. Such an event is estimated to have an occurrence probability of 60-to-70 percent during the next 30 years, according to Japanese scientists.

Mr. Kuzak noted that after the Niigata prefecture Chuetsu-oki earthquake earlier this year, the automobile industry suffered a production drop of about 120,000 units.

“Even earthquakes such as the Chuetsu-oki event, well below a magnitude 8 at a magnitude 6.8, caused considerable business losses,” Mr. Kuzak said. Japan's Ministry of Economy, Trade and Industry estimated that industrial production in Japan shrank by 0.4 percent due to that earthquake.

The ABS Consulting/Eqecat study examined the potential earthquake damage and loss for 32 corporations in the eight industry groups. The number of enterprises in each group ranged from three to nine.

ABS Consulting said it will host a free, half-day seminar on Nov. 14 at the Toranomon Pastoral Hotel, Tokyo, to present the research findings and discuss new ways to assess and manage supply chain risk.