Australia stocks sees mixed impact from Japan

Asia Stocks to Watch

March 23, 2011, 12:17 a.m. EDT

By Virginia Harrison, MarketWatch

SYDNEY (MarketWatch) — The natural and nuclear disasters in Japan have delivered a mixed picture for Australian investors, dealing a blow to some companies, but with the reconstruction efforts tipped to boost others, particularly uranium stocks, analysts say.

Asian markets have begun to stabilize slightly in the aftermath of the 9.0 magnitude earthquake which struck Japan’s northeast coast almost two weeks ago.

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While the nuclear crisis at the Fukushima Daiichi power plant is far from resolved, the absence of any news to indicate a significant worsening of the situation has brought some strength to markets.

“We’re already seeing these nuclear fears are starting to dissipate, and we’re starting to focus on rebuilding efforts,” said Ben Potter, market strategist at IG Markets.

Reconstruction winners

Supply shortages and rebuilding activities are expected to stoke regional demand, with Australian steel makers Bluescope Steel Ltd. and Onesteel Ltd. among those in line to profit.

“OneSteel and Bluescope will certainly benefit from selling steel to Japan. There’s been a significant disruption to Japanese operations over the last two weeks, and [steel mills in Japan] won’t run at the same rate when back online,” Potter said.

The stocks could use a lift — Bluescope shares are down by nearly 15% this year, and Onesteel is off by 7.3%. In early Wednesday afternoon trading, Bluescope /quotes/comstock/22x!e:bsl (AU:BSL 1.91, -0.03, -1.55%) /quotes/comstock/11i!blsff (BLSFF 1.92, -0.02, -1.03%) and Onesteel /quotes/comstock/22x!e:ost (AU:OST 2.39, -0.03, -1.24%) /quotes/comstock/11i!ostlf (OSTLF 0.00, 0.00, 0.00%) were both off by 0.1%

Commodity producers are also in line to benefit from Japan’s reconstruction. Read more about Australia commodity firms and the Japan quake

Energy stocks will be closely monitored, as Japan seeks alternative sources to power its recover. Reports suggest Japan may need an additional 5 million metric tonnes of liquefied natural gas (LNG), to offset the loss of nuclear power.

“Japan is going to have to ramp up its LNG use. Nuclear-power facilities are offline, and they are rationing power. Spot prices have received a boost, and big players like Woodside Petroluem and some junior players stand to benefit,” Potter said.

Woodside Petroleum Ltd., Santos Ltd, Origin Energy Ltd. and Oil Search Ltd. have all recorded gains on Australia’s S&P/ASX200 over the past week.

In Wednesday trading, Woodside /quotes/comstock/22x!e:wpl (AU:WPL 45.00, +0.35, +0.78%) /quotes/comstock/11i!wopey (WOPEY 45.85, -0.40, -0.87%) rose 1.0%, Santos /quotes/comstock/22x!e:sto (AU:STO 15.20, +0.30, +2.01%) /quotes/comstock/11i!stosf (STOSF 15.19, -0.26, -1.68%) improved by 2.0%, Origin Energy /quotes/comstock/22x!e:org (AU:ORG 15.66, +0.26, +1.69%) /quotes/comstock/11i!ogfgf (OGFGF 15.40, -0.55, -3.45%) put on 1.7%, and shares in Oil Search /quotes/comstock/22x!e:osh (AU:OSH 7.00, +0.05, +0.72%) /quotes/comstock/11i!oishf (OISHF 7.14, +0.04, +0.56%) were 0.9% higher.

/quotes/comstock/11i!oishf (OISHF 7.14, +0.04, +0.56%) The moves came as the benchmark S&P/ASX 200 /quotes/comstock/27w!i:xjo (AU:XJO 4,655, +11.66, +0.25%) advanced 0.3%.

Elsewhere in Asia, Japan’s Nikkei Stock Average /quotes/comstock/64e!i:ni225 (JP:NI225 9,518, -90.65, -0.94%) was down 1% but off the day’s lows, while Hong Kong’s Hang Seng Index /quotes/comstock/08s!i:hsi (HK:HANGSENG 22,820, -38.07, -0.17%) fell 0.2%, South Korea’s Kospi /quotes/comstock/64e!ks11 (XX:$SEU 2,020, +6.49, +0.32%) rose 0.2%, and the Shanghai Composite /quotes/comstock/16k!i:000001 (CN:SHCOMP 2,942, +22.74, +0.78%) added 0.8%.

Post-disaster impact

Uranium producers have provoked plenty attention in the wake of the Fukushima Daiichi nuclear crisis. Uranium stocks were the hardest hit on Australian markets following the disaster, which sparked panic selling over concerns for the future for nuclear power.

Shares in Rio Tinto Ltd. /quotes/comstock/22x!e:rio (AU:RIO 80.67, +0.12, +0.15%) /quotes/comstock/13*!rio/quotes/nls/rio (RIO 66.40, +0.27, +0.41%) subsidiary Energy Resources Australia are down by 28% this year, while Paladin Energy is off nearly 27%.

On Wednesday, Energy Resources Australia /quotes/comstock/22x!e:era (AU:ERA 8.01, +0.12, +1.52%) gained 2.0%, and Paladin /quotes/comstock/22x!e:pdn (AU:PDN 3.63, +0.04, +1.11%) /quotes/comstock/11i!palaf (PALAF 3.60, -0.23, -6.01%) put on 1.4%.

But the pain is expected to be short-term.

“As tends to happen from time-to-time, broad market panic has seen good-quality companies thrown out with the bad,” Colin Whitehead at Fat Prophets said in a note Wednesday.

“We do not expect the disaster at Fukushima to significantly impact the world’s march towards greater reliance on nuclear energy. The present reality is that the modern world needs a clean, reliable source of base-load power, and that is what nuclear provides,” the analyst said.

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“The underlying and in our view undamaged-longer-term fundamentals for uranium supply and demand provide the potential for significant upside,” he said.

Ben Potter from IG Markets agreed that a return of global appetite for nuclear power will enhance the appeal of uranium stocks.

“Nuclear power is a growing part of the worlds energy mix. It has to have its place, we have no other way to power the world,” Potter said.

“Uranium stocks will definitely recover — whether that is in six months or two years, we’ll wait and see,” he said.

Insurers, others face downside

Only a small number of Australian companies will face a direct hit from the Japanese disaster.

The nation’s biggest insurer, QBE Insurance Group Ltd., raised the Japan alarm, the latest in a string of catastrophe claims to hit the firm this year, including payouts related to floods, cyclones and bushfires in Australia.

“Preliminary estimate of the net claims from the earthquake and following tsunami in Japan is around $125 million,” the firm said in a statement following the natural disaster.

Shares of QBE /quotes/comstock/22x!e:qbe (AU:QBE 16.92, -0.08, -0.47%) /quotes/comstock/11i!qbeif (QBEIF 16.82, +0.10, +0.60%) on Wednesday lost 0.3%.

But other major insurers in Australia have minimal Japanese exposure.

Surf-and-ski-wear retailer Billabong International Ltd. issued a profit downgrade on its Japanese exposure. The firm was forced to close 40% of its stores in the region following the disaster, and tipped net-profit after tax will be between 2% and 6% down in constant-currency terms on the prior year.

“The latest profit downgrade has not altered Billabong’s likely ability to return to sustainable growth next year,” Fat Prophet’s Colin Whitehead said in a note.

“The important question is whether there will be flow-on effects into next year, and this is dependent on the speed at which Japan can rebuild. It took a year to replace damaged infrastructure following the 1995 Kobe quake, and a similar timeframe is likely this time around,” Whitehead said.

We would expect however that essential infrastructure and therefore Billabong’s supply chains will be re-established more quickly,” he added.

Billabong’s stock /quotes/comstock/22x!e:bbg (AU:BBG 7.52, -0.06, -0.79%) /quotes/comstock/11i!bllaf (BLLAF 8.45, +0.03, +0.36%) gave up 0.7% on Wednesday.

Tourism could be another victim of Japan’s nuclear crisis, putting Qantas Airways Ltd. /quotes/comstock/22x!e:qan (AU:QAN 2.09, 0.00, 0.00%) /quotes/comstock/11i!qubsf (QUBSF 2.10, +0.02, +0.96%) and Virgin Blue Holdings Ltd. /quotes/comstock/22x!e:vba (AU:VBA 0.31, -0.02, -6.06%) /quotes/comstock/11i!vbhlf (VBHLF 0.34, +0.0002, +0.06%) in focus. On Wednesday, the Qantas shares were flat, while Virgin Blue dropped 7.6% after issuing a profit warning.

“Foreign tourist inflows into Japan will be greatly reduced in the short to medium term. There will be a big reduction in tourism,” Ben Potter said.

Virginia Harrison is a MarketWatch reporter based in Sydney.

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