Japan Nuke Fears Hit Commodities Stocks

NEW YORK ( TheStreet) -- Selling pressure hit commodities-linked stocks Tuesday as Japanese markets crashed amid the burgeoning post-quake nuclear crisis.

The downward pressure was general, with the Dow Jones Industrial Average tumbling more than 200 points, but the declines among commodities names were among the most severe no matter the sector. Institutional investors that had pushed commodities prices to near record highs in recent weeks are using the ugly headlines scrolling across the tapes as an excuse to rotate out of commodities and equities, say market participants.

>>Japan Disaster Shakes Global Raw Materials Trade

"We're seeing investment money just bailing out of commodities," said Darin Newsom, senior commodities analyst at DTN in Baltimore. "We had seen that trend in grains for the last two weeks or so, but now we're seeing it in metals, in energies, in everything."

Fundamental fears have also crept into the markets on speculation that the quake and its dangerous aftermath has imperiled Japan, the world's third-largest economy (until very recently, No. 2), and thus the global economy.

Longer term, however, analysts say that Japan's inevitable rebuilding effort should eventually boost demand for industrial metals.

"There certainly is a news part of this puzzle," Newsom said. "The more bearish the news becomes, the quicker the sell orders are hit, and the more fundamental traders and investors are pushed to the side."

Global mining concerns like BHP Billiton ( BHP), metals producers like aluminum giant Alcoa ( AA) and steelmaker ArcelorMittal ( MT), dry-bulk shippers such as Diana Shipping ( DSX) and Genco Shipping & Trading ( GNK), and mining-equipment manufacturers such as Caterpillar ( CAT) and Joy Global ( JOYG) were all down sharply Tuesday morning, in some cases losing more than 5%.

Metals futures prices were also falling hard Monday as the U.S. dollar spiked. The dollar and commodities prices are often inversely correlated because commodities are denominated in safe-haven greenbacks, making them more expensive to buy.

On the Chicago Mercantile Exchange, copper for May delivery, the most heavily traded contract, was falling 5 cents to about $4.14 a pound, down from the record highs seen in mid-February of more than $4.65 a pound. In London, meanwhile, copper futures tumbled 2.2%.

Shares of copper giant Freeport McMoRan ( FCX) were faring better than the rest, however, trading recently at $48.39, down 1%.

Elsewhere, the big iron-ore producers, which feed Japan's steel industry, the world's second largest, had rebounded some from their session lows. BHP Billiton was down 3.5%, Rio Tinto ( RIO) 3.3% and Vale ( VALE) 3%. All had earlier declined by more than 5%.

The worst hit sector of commodities-linked stocks was probably dry-bulk shipping, where fears percolated that the closing of so many Japanese ports because of the tsunami will impair demand for oceangoing freight services in the near term.

That reduction in demand couldn't come at a worse time for dry-bulk ship owners, who have faced a collapse in rates since the beginning of the year as a glut of new ships weighs on the market.

Among stocks in the sector, DryShips ( DRYS) was down 3.4%, Diana 4.5%, Genco 5% and Excel Maritime ( EXM) 6.3%.

-- Written by Scott Eden in New York


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