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By Ben McLannahan in Tokyo
Japan’s five big trading companies have reported mostly subdued quarterly results and full-year outlooks, signalling their reduced appetite for investment in natural resources amid sharp falls in prices.
The trading houses have accelerated investments in energy, metals and minerals businesses, buoyed by a strong yen and seemingly robust demand in emerging economies. Rising iron ore and coal prices helped them to generate record combined net profits of more than Y1.6tn ($20bn) in the past fiscal year.
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Lately, though, they have reconsidered, hit hard by the industrial slowdown in China and enduring weakness in Europe, and its chilling effect on prices of commodities such as iron ore and coal.
This week, as the big trading houses presented results for the July-September period, only one – Marubeni Corp, among the least exposed to resources – said it had boosted profits during the first six months of the fiscal year to March.
On Friday Mitsubishi Corp, the largest trader by market capitalisation, justified a 33 per cent cut in its full-year profit forecast by citing the threat posed by “structural problems” in China and austerity-induced slowdowns in developed economies.
The fall in resources prices is now affecting investments.
Mitsubishi, due to unveil a three-year strategy in the next few months, is expected to place less of an emphasis on investment in resources, focusing on areas such as transport, infrastructure and agricultural commodities, according to people familiar with the situation.
Of the Y170bn downgrade in Mitsubishi’s net income forecast to Y330bn, Y150bn was attributable to resource-related businesses, principally coking coal.
Following the downgrade, Mitsubishi will generate 48 per cent of its net profit from natural resources in the current fiscal year – its first sub-50 per cent figure in eight years.
“The most essential thing is to ramp up non-resource earnings as a foundation,” said Kazuhisa Mori, an analyst at Barclays in Tokyo. “[The trading companies] are looking at a flat commodity-price situation going forward, and expectations for resources business are getting lower.”
Mitsui & Co and Sojitz Corp joined Mitsubishi on Friday in lowering their full-year profit outlooks.
Mitsui, the number two trader by market capitalisation, blamed falling iron ore prices for a 23 per cent cut in its full-year net profit forecast, to Y320bn.
Earlier in the week, Sumitomo Corp said its full-year forecast of Y260bn was at risk, amid softer markets for coal, lead and zinc. It said that more than 90 per cent of net profit in the second quarter came from non-resources areas such as media and retail.
In a similar vein to Mitsubishi, Sumitomo’s management plan for the next two years is expected to focus on investment in solid, income-producing assets such as infrastructure, at the expense of volatile metals and minerals.
Marubeni, meanwhile, kept its net profit forecast unchanged at a record Y200bn, buoyed by resilient first-half performances from its power projects and fertiliser businesses.
The company plans to cut its share of net profit from commodities to 39 per cent by April, the least in at least six years, it said on Thursday.
Marubeni is still awaiting clearance from China’s competition regulator, to go ahead with its $3.6bn acquisition of Gavilon , the US-based trader with a strong position in supplying grains and oilseeds to China.
CFO Yukihiko Matsumura told reporters this week that he hoped for a green light on the deal by December or January.
