Japan’s top trading houses see no recovery on the horizon for the commodities crash that forced some of the first-ever annual losses by the champions of the nation’s economy, accelerating their shift away from energy and raw materials.
The country’s five biggest traders all expect further declines in oil, which has already slumped about 60 percent over the past two years. Mitsubishi Corp. sees prices sliding 19 percent in the current fiscal year, while rival Mitsui & Co. sees a 15 percent decline. Itochu Corp. sees Brent, the global benchmark, slumping almost 29 percent.
“The negative price pressure on metals and fuels will continue for the next two or three years,” Tatsuo Yasunaga, Mitsui chief executive officer, told reporters Tuesday. “We must waste no time strengthening our non-resource businesses.”
The forecasts illustrate the predicament Japan’s “sogo shosha,” or general trading houses, find themselves in after investing heavily in metals and energy at the height of the commodities boom. The companies, which supply everything from gasoline to noodles in resource-poor Japan, are now seeking to diversify businesses and assets away from energy and mining projects.
The top five trading houses had a combined 1.23 trillion yen ($11 billion) in impairment charges in the year ended in March as the value of metal, oil and gas assets declined. In particular, Mitsubishi booked a 271 billion yen charge on a copper project in Chile, while Sumitomo Corp. recorded a 77 billion yen writedown on a nickel venture in Madagascar.
Mitsubishi’s stock price has plummeted about 30 percent in the past year, while Mitsui has dropped 22 percent. That compares with a 15 percent decline for Japan’s Nikkei 225 Stock Average.
Natural Gas
Mitsui forecast an 8.7 percent decline in Henry Hub natural gas prices to $2.4 per million British thermal units, while Mitsubishi assumes copper will fall 11 percent. Sumitomo expects iron ore to average $50 a ton, down from $56, and sees thermal coal falling to $60 per ton from $65.
The bearish forecasts come even as crude rebounded from a 12-year low earlier this year on signs a global oversupply will ease. The International Energy Agency said last month that global production from outside the Organization of Petroleum Exporting Countries will plunge by 700,000 barrels a day this year even as demand increases by 1.2 percent.
The nation’s top two trading houses, Mitsubishi and Mitsui, reported this week their first ever annual losses. The companies, which anticipate oil prices remaining stagnant for as long as three more years, both aim to strengthen non-resource businesses.
Itochu Corp., Japan’s third-biggest trader by market value, has been diversifying away from energy and posted the highest profit among the traders. It sees Brent crude averaging $35 in the year ending March. The global benchmark has averaged $43.69 in the current fiscal year through May 9.
Mitsubishi is aiming to increase investments in non-resource areas including consumer goods manufacturing and motor vehicles. Mitsui last year said it will look to food- and medicine-related businesses to boost earnings.
(Updates with trading house impairment charges in fifth paragraph.)
To contact the reporters on this story: Stephen Stapczynski in Tokyo at sstapczynsk1@bloomberg.net, Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Iain Wilson
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