Japan Faces Higher Energy Costs

123jump.com Staff
12 Feb, 2008
New York City

Investors in Japan focused on rising subprime losses in the U.S. and surging metal and oil prices in the region. AIG sharply increased its losses from risky loans to $5.9 billion from $1.1 billion reported three months ago. Copper and oil rose as investors worried that bad weather conditions in China will hurt production. Indonesia is expected to lower by 90% LNG shipments to Japan.

[R]5:00AM New York, 7:00PM Tokyo - Commodities and energy stocks leads Tokyo’s gain. Sumitomo Heavy Industries makes 58 billion yen buyout proposal for U.S. chip manufacturer Axcelis Technologies.[/R]

Japan stock averages edged higher despite rising metals and oil prices in the region. Metals especially copper gained after China forecasted difficult weather conditions and investors estimated weeks of disrupted production.

Market Sentiment

In Tokyo trading Nikkei 225 edged 0.04% higher or 4.72 to 13,021.96, and the broader Topix Index declined 0.1% or 1.04 to 1,286.10.

In the first section of the Tokyo Stock Exchange 10 billion shares worth 1 trillion yen were traded and in the second section 490 million shares valued at 3.5 billion yen changed hands.

Of the Nikkei 225 stocks 98 gained, 121 fell, and 6 were unchanged. Inpex Holdings led gainers with a rise of 8.74% after crude oil prices for March delivery advanced 2% to $93.59 per barrel.

AIG Weaknesses

American International Group Inc, the world’s largest insurer, declined yesterday after it reported in a regulatory filing with the Securities and Exchange Commission that auditors have discovered a “material weakness” in the way the company values its senior credit-default swaps.

The company changed the method how it uses calculation of losses in these swaps and increased its estimate of losses by $4.9 billion to $5.9 billion at the end of November 2007. The company also cited that it cannot value these complex securities at this time. Separately its independent auditors PriceWaterhouseCoopers said that company has material weakness in valuing these securities.

The company said it will need to alter the way it values its credit default swaps involving collateralized debt obligations, adding that earlier estimates had included an adjustment for cash flow diversion. AIG stock fell 12% dragging other insurance companies with it.

Looming LNG shortages

Yomiuri news on line reported yesterday that a final agreement between Indonesian state run Pertamina and six other Japanese companies, including Kansai Electric Power, on reduction of liquefied natural gas imports to Japan is expected on February 19.

The two parties have agreed to reduce the amount of annually imported gas from 12 million tons to 2 million tons but its price is still negotiated.

Reduction of LNG imports from Indonesia, which supplies 22% of the fuel, will most likely result in the increase in fees for electricity and gas.

Gainers and Losers

Inpex Holdings led advancers of the Nikkei 225 index shares with a gain of 8.74% followed by rises in Fujitsu Limited of 8.16%, in TDK Corp. of 5.55%, in Pioneer Corp of 5.52%, and in Shimizu Corp. of 5.46%.

Inpex Holdings gained after the crude oil prices edged up 2% to $93.58 per barrel yesterday.

Commodity stocks rose helped by metal price increases that are being caused by output constraints in China as inclement weather is likely to hamper production for weeks. Mitsui & Co advanced 4.58% and Mitsubishi Corp. rose 2.72%.

Shipbuilders gained on higher fuel prices. Kawasaki Kisen gained 3.65% and Mitsui O.S.K. Lines jumped 4.58%.

Exporters gained as the yen weakened 0.45% from 107.05 to 107.07 against the dollar. Toshiba climbed 1.94% and Toyota Motor Corp edged up 1.53%.

Nippon Light Metals led decliners of the Nikkei 225 index shares with a drop of 17.34% followed by losses in Daiwa Industries of 14.17%, in Mitsui Sumitomo Insurance of 6.36%, in Chiyoda Corp of 6.35%, and Furukawa Electric of 6.25%.

Mitsui Sumitomo Insurance declined on reports by AIG that the auditors had found weaknesses in the way it values credit default swaps. Other insurance companies were sold as well. Millea Holdings shed 5.69% and Sompo Japan Insurance fell 5.44%.

Company News

The Nikkei news online reported today that Sumitomo Heavy Industries said Monday it has made a proposal to buy U.S. chip manufacturer Axcelis Technologies Inc for 58 billion yen. The chipmaker is also listed on the Nasdaq stock market.

Separately, the online publication of Japan Post Holdings, which boasts of 24,000 post offices, will today sign a tie-up agreement with Lawson Inc in order to boost business efficiency. Lawson closed up 2%.

Asian Markets Indexes

In Tokyo Nikkei 225 Index closed higher 4.72 or 0.04% to 13,021.96, in Hong Kong Hang Seng index increased 305.56 or 1.35% closed to 22,921.67. Australia ASX 200 index increased 70.50 or 1.27% to close 5,608.10.

In South Korea Kospi Index increased 2.62 or 0.16% to close at 1,643.29, in Thailand SET index closed higher 13.34 or 1.66% to 817.49 and Indonesia JSE Index edged increased 2.69 or 0.10% to 2,592.07. Sensex index in India decreased 22.90 or 0.14% to 16,608.01.