Japan Stocks Fall as Shipping Fees, Oil Decline; Banks Retreat

By Masaki Kondo

Sept. 9 (Bloomberg) -- Japan's stocks fell after slumping commodities demand dented the earnings prospects for shipping and resource companies and as banks retreated from yesterday's surge.

Mitsui O.S.K. Lines Ltd., the nation's largest iron-ore ship operator, lost 6.9 percent after falling Chinese demand dragged commodity cargo rates to the lowest in a year. Mitsui & Co., which has stakes in Gulf of Mexico and Australia oil fields, fell 8.1 percent as crude traded near a five-month low. Sumitomo Trust & Banking Co., which jumped by its daily limit yesterday, lost 4.8 percent as the U.S. government's takeover of the nation's biggest mortgage lenders failed to quell financial market concern.

The Nikkei 225 Stock Average declined 223.81, or 1.8 percent, to close at 12,400.65 in Tokyo. The broader Topix index fell 24.82, or 2 percent, to 1,191.59. All but three of 33 Topix industry groups on the Topix retreated.

``With increasing food and energy prices gnawing at emerging economies, investors expect demand for shipping services to slow,'' said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which manages the equivalent of $3.3 billion.

Today's drop more than halved the Nikkei's gain yesterday, the sharpest in five months. The index has retreated 19 percent this year as inflation at a decade high damped consumer spending and slowing exports to the U.S. and Europe cut corporate profits.

The Baltic Dry Index, a measure of shipping costs for commodities, extended its drop to a 14th trading session yesterday to the lowest since June 20, 2007, on weaker Chinese demand for iron ore.

Mitsui O.S.K. dropped 6.9 percent to 1,079 yen, while Kawasaki Kisen Kaisha Ltd., Japan's third-biggest shipping line, lost 5.9 percent to 659 yen. Market leader Nippon Yusen K.K. declined 4.5 percent to 780 yen. A gauge of 10 shippers fell to the lowest since November 2006 and was the biggest loser among 33 industry groups on the Topix, followed by trading companies.

Falling Oil

Crude oil for October delivery, which fell to the lowest since April 4 yesterday, retreated to as low as $104.77 a barrel on the New York Mercantile Exchange. Oil has dropped 28 percent from its July 11 record of $147.27.

Mitsui, Japan's second-biggest trading company by value, plummeted 8.1 percent to 1,561 yen, extending its drop to 27 percent since July 11. Sumitomo Corp., the third largest, dropped 5.3 percent to 1,236 yen, while Mitsubishi Corp., the biggest, lost 5.7 percent to 2,590 yen.

``Shares in trading companies have risen in step with prices for natural resources,'' said Toyota Asset's Hamasaki. ``When commodities fall, so do these stocks.''

A $1 change in the price of a barrel of crude alters Mitsui's annual net income by 1.8 billion yen ($17 million), making it the most sensitive to oil among Japan's biggest trading companies, according to estimates by Mitsubishi UFJ Securities Co.

Banks Retreat

Sumitomo Trust, Japan's fifth-largest listed bank by value, fell 4.8 percent to 654 yen after having leapt 17 percent yesterday. Chuo Mitsui Trust Holdings Inc. lost 4.7 percent to 584 yen. Yesterday, the Topix Banks Index surged the most in 16 years after the U.S. government took over Fannie Mae and Freddie Mac, which control almost half the U.S. mortgage market.

``The takeover is not the kind of radical move that can turn around the weak global economy,'' said Hiroshi Chano, who helps manage about $7.3 billion at Yasuda Asset Management Co. in Tokyo.

Chemical maker Toagosei Co. plunged 12 percent, the most since February 2006, to 354 yen, making it the biggest loser on the Nikkei 225 gauge, while builder Kumagai Gumi Co. slumped 7.3 percent to 51 yen. The stocks will be replaced in the benchmark by Hitachi Construction Machinery Co. and Pacific Metals Co. on Oct. 1, Nikkei Inc. said yesterday.

Index Funds

Hitachi Construction, the world's biggest maker of giant excavators, climbed 3 percent to 2,395 yen, while Pacific Metals added 2.5 percent to 670 yen. So-called index funds tracking the movement of the benchmark will add the newly included stocks to their holdings.

Acom Co., Japan's largest consumer lender by value, leapt 14 percent to 3,580 yen, posting the biggest gain on the MSCI World Index. Mitsubishi UFJ Financial Group Inc., the nation's largest listed bank, yesterday said it will more than double its stake in the company. Mitsubishi UFJ dipped 1.2 percent to 840 yen.

Nikkei futures expiring in September retreated 2.1 percent to 12,390 in Osaka and slumped 1.3 percent to 12,430 in Singapore.

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