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Australia Resources Boost Japan Traders’ Profits as Energy Lags

Mitsubishi Corp. (8058) and Mitsui & Co., Japan’s two biggest trading houses, posted their best quarterly earnings in as many as two years as their Australian coal and iron ore operations recovered.

Faced by slowing Chinese growth, Mitsubishi cut costs at coal mines it owns with BHP Billiton Ltd. (BHP) and sold more cars in Asia on the back of a weaker yen, to grow net income 15 percent to 115.7 billion yen ($1.2 billion) in the three months ended June 30, the Tokyo-based company said today in a statement. That was its highest profit in six quarters.

Mitsui, Japan’s second-biggest trader, said the yen’s decline boosted gross profit from mining led by iron ore 22 percent in the period, helping the Tokyo-based company raise net income by 20 percent to 125.8 billion yen. That’s the highest in two years.

“The global economy continues its recovery, albeit at a very slow pace,” Mitsui said in a statement today. While iron ore entered a bull market last week as China replenished stocks, the world’s second-largest economy is “clearly shifting its policy focus from the pace of growth to the sustainability of growth,” Mitsui said.

Even as the pace of China’s growth falters along with other emerging economies, more advanced economies are gaining in strength to compensate, Mitsui said.

Sells More

The company sold more oil, grain, iron ore and petrochemicals in the three months to July, it said. “The price for iron ore, coal, oil and other commodities is lower than last year, but with higher volumes of iron ore production and the weaker yen we’ve been able to offset this in some way,” Mitsui’s Chief Financial Officer Jiji Okada said at a briefing in Tokyo.

“A modest recovery” in the U.S. and in Japan under Prime Minister Shinzo Abe is improving trade volumes, according to Mitsubishi, whose own consolidated operating transactions rose 13 percent to 5.4 trillion yen in the first quarter.

The two trading firms fared worse in energy. Mitsui said it wrote down 3.3 billion yen on an investment in an unnamed liquefied natural gas project because of a decline in its value.

Writedowns from shale gas and lower dividends from energy projects outside Japan pushed Mitsubishi’s energy segment, its biggest earner, down 11.8 billion yen to 42.5 billion yen, the company said.

Itochu Corp. (8001), Japan’s third-largest trader, said yesterday it booked about 3 billion yen in impairment losses on North American shale gas assets. The company’s profit rose 9.4 percent to 77.3 billion yen in the quarter to July based on rising machinery sales and contributions from the Dole canned fruit and Asian fresh vegetables business, which it bought this year.

While Japanese trading houses are expanding in businesses such as medicine and retail to lessen the impact of volatile metal and energy prices, commodities are still their biggest profit drivers.

Energy and metals made up more than 73 percent of Mitsui’s and more than 51 percent of Mitsubishi’s profit last quarter. At Itochu, it accounted for less than 32 percent.

To contact the reporter on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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