Japan Stocks Fall for First Time in 3 Days, Led by Steelmakers

By Masaki Kondo

Aug. 12 (Bloomberg) -- Japan's stocks fell for the first time in three days on concern steelmakers' earnings will be squeezed and the fastest wholesale inflation in almost three decades will erode profit margins at manufacturers.

JFE Holdings Inc., Japan's second-biggest steelmaker, led producers of the alloy lower on speculation Chinese exports will weigh on prices. Snow Brand Milk Products Co. sank the most in five years as materials costs cut profit. Mitsui Sumitomo Insurance Group Holdings Inc. rose to the highest this month as first-quarter profit reached about half of its annual target.

Losses accelerated in the afternoon after the government said Japanese consumer sentiment fell to the lowest on record.

``Increased exports from China will lead to a drop in steel prices,'' said Mitsushige Akino, who oversees the equivalent of $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``Falling auto sales are cutting revenue at Japanese steelmakers, while production costs remain high.''

The Nikkei 225 Stock Average fell 127.31, or 1 percent, to close at 13,303.60 in Tokyo. The broader Topix index dropped 8.58, or 0.7 percent, to 1,271.42. More than four stocks retreated for each that advanced on the Topix.

China's steel exports climbed 38 percent in July from the previous month, the nation's customs office said yesterday. BHP Billiton Ltd., the world's biggest mining company, raised prices of iron ore by as much as 97 percent this year, while its venture with Japan's Mitsubishi Corp. tripled coking-coal prices.

Japan's producer prices, the costs companies pay for energy and raw materials, climbed 7.1 percent in July from a year earlier, the steepest gain since January 1981, the Bank of Japan said today. Meanwhile, Japanese consumers became the most pessimistic in June since at least 1982 when the government began compiling the figures, the Cabinet Office said today.

Steel, Foods

JFE fell 6.1 percent to 4,480 yen, while bigger rival Nippon Steel Corp. sank 4.6 percent to 516 yen. Sumitomo Metal Industries Ltd. dropped 4.6 percent to 453 yen. Steelmakers fell to the lowest since August 5 and posted the biggest decline among 33 groups on the Topix.

Snow Brand tumbled 13 percent, the most since February 2003, to 356 yen, after net income fell 12 percent. Ajinomoto Co., the nation's largest maker of food additives, lost 4.4 percent to 1,029 yen, after surging materials costs more than halved first- quarter profit. Nikko Citigroup Ltd. lowered its rating on the stock to ``hold'' from ``buy.''

Japan Airlines Corp., Asia's largest carrier, jumped 3.7 percent to 226 yen, the highest since June 20. Rival All Nippon Airways Co. added 1.3 percent to 399 yen.

Kerosene Costs

The price of crude oil has fallen 21 percent from a record on July 14 to its close at $114.45 in New York yesterday. A $1 increase in a barrel of jet kerosene boosts Japan Air's annual costs by about 4 billion yen ($36 million), it said on Aug. 7.

Mitsui Sumitomo Insurance climbed 5.5 percent to 3,440 yen, the highest since July 31. Net income rose 0.2 percent to 23.5 billion yen, the company said yesterday, which was 45 percent of its annual forecast.

``Investors have shied away from insurers on concern they would report writedowns linked to monolines and credit-default swaps,'' said Ichiyoshi's Akino. ``In reality, they had few such losses.''

The Topix Insurance Index fell 21 percent from its June 11 high this year to yesterday, almost double the rate of the overall benchmark.

Nikkei futures expiring in September lost 0.6 percent to 13,310 in Osaka and fell 0.3 percent to 13,325 in Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.