Japan Stocks Rise After Oil Drop Eases Cost Concern; Oji Gains

By Masaki Kondo

Sept. 3 (Bloomberg) -- Japan's stocks rose for the first time in three days, led by paper and tire makers, after crude oil slumped to a near five-month low, easing production costs.

Oji Paper Co., Japan's biggest user of high-sulfur fuel oil, climbed 6.9 percent to the highest in 11 months, while Sumitomo Rubber Industries Inc., the nation's third-largest tiremaker, surged 8.1 percent. JFE Holdings Inc. led steelmakers lower after rival ArcelorMittal said it will cut prices.

``If crude prices decline further, then so much the better for manufacturers,'' said Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``Higher oil prices no doubt increase production costs.''

The Nikkei 225 Stock Average climbed 80.12, or 0.6 percent, to close at 12,689.59 in Tokyo, following a two-day, 3.5 percent slump. The broader Topix index rose 8.18, or 0.7 percent, to 1,220.55. Twenty of 33 Topix industry groups gained.

Crude oil futures fell as much as 8.7 percent to $105.46, the lowest since April 4, before closing at $109.71 yesterday after Hurricane Gustav appeared to cause only light damage to oil installations in the Gulf of Mexico. Oil has fallen more than $37 from its July record.

Oji, Japan's largest papermaker, leapt 6.9 percent to 586 yen, the highest since October 2007. Smaller rival Nippon Paper Group Inc. surged 9.1 percent to 336,000 yen, leading gains on the Nikkei. Sumitomo Rubber added 8.1 percent to 1,002 yen and posted the second-biggest gain on the MSCI World Index after Nippon Paper. Makers of paper and rubber were the two biggest winners among Topix groups.

Inpex Holdings Inc., Japan's largest oil and gas explorer, slumped 3.9 percent to 1.025 million yen, the lowest since Aug. 6. Mitsui & Co., a trading company that gets half of its profit from commodities, plunged 7.3 percent to 1,660 yen, the lowest since December 2006 and leading declines on the Nikkei.

China Demand

A $1 change in the price of a barrel of crude alters Mitsui's annual net income by 1.8 billion yen ($17 million), according to Mitsubishi UFJ Securities Co.

Komatsu Ltd., the world's second-biggest maker of earthmoving equipment, tumbled 7.1 percent to 2,095 yen, the lowest since December 2006. Demand from emerging markets such as China is significantly declining, Teruo Isozaki, an analyst at Mitsubishi UFJ Securities, wrote in a Japanese-language report dated yesterday. He cut his rating on the stock to ``market perform'' from ``outperform.''

Defensive Stocks

``A slowdown in China gets investors worried about the outlook for the global economy,'' said Koji Toda, chief fund manager at Resona Trust & Banking Co. in Tokyo. ``Pessimists are shifting their funds to defensive stocks, shoring up today's Japanese market.''

Tokyo Electric Power Co., Asia's biggest utility, soared 3.9 percent to 3,230 yen, while Kansai Electric Power Co. added 4 percent to 2,715 yen. Power generators, whose earnings are deemed relatively insulated from an economic slowdown, posted the third- sharpest advance among Topix industry groups.

JFE tumbled 4.1 percent, the most since Aug. 12, to 4,500 yen, while smaller rival Sumitomo Metal Industries Ltd. retreated 4.4 percent to 462 yen.

``With a slowdown in the Chinese economy becoming increasingly noticeable, steelmakers there have started exporting more products, which is expected to drive down prices,'' said Ichiyoshi's Akino.

ArcelorMittal, the world's biggest steelmaker, said it will cut prices in South Africa for long products, mainly used in construction, citing ``domestic market conditions.'' Charlie Dove-Edwin, an analyst at MF Global Securities based in London, said that may trigger price cuts for steel around the world.

Elpida Memory Inc., Japan's largest maker of computer-memory chips, tumbled 11 percent to 2,045 yen, the worst slump since it listed on the bourse in November 2004. Nomura Securities Co. lowered its rating on the stock to ``neutral'' from ``buy,'' citing a longer-than-expected decline in demand for the devices.

Nikkei futures expiring in September added 0.6 percent to 12,680 in Osaka and gained 0.5 percent to 12,685 in Singapore.

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