Mitsui & Co., Japan’s top oil trader, is expanding its focus beyond raw materials as its incoming chief executive officer contends with an expected 22 percent decline in profit this year.
As much as 80 percent of Mitsui’s profit comes from such areas as iron ore, coal, oil and gas trading, which are sliding in value and dragging down earnings.
Tatsuo Yasunaga, who leapfrogged promotion rankings to take the top job April 1, is looking to food, health care and services to reverse that trend at the 139-year-old trading house.
The expansion is “well overdue,” Yasunaga said in an interview in Tokyo. “What we need to do is strengthen in areas that are not directly affected when commodity prices drop, areas that are closer to retail, health care, infrastructure connecting food and farms, and mobility.”
The company set up a new division in April to evaluate deals in those areas, and in the past six months has made investments in the U.S. and Africa focusing on the infrastructure that supports transportation and mining.
Itochu Corp. and Mitsubishi Corp. were the only two of Japan’s top five trading houses to meet profit targets last year. They both own stakes in domestic convenience store chains, which are expanding in Asia. Itochu, which expects profit to grow again this year, announced in January a $5 billion deal for a stake in China’s state-run conglomerate Citic Ltd. to get access to consumers in the world’s most populous nation.
Mitsui is one of the country’s general trading houses that helped feed Japan’s post-World War II economic revival by buying up and importing the oil, metals and other raw materials needed by what became world-beating companies such as Toyota Motor Corp. and Sony Corp.
While Mitsui has added fashion brands and farms to mines and oil fields, it was energy and metals -- built on investments with companies such as BHP Billiton Ltd. and Anadarko Petroleum Corp. -- that helped drive net income to $5.5 billion in 2011, up 12-fold from a decade earlier.
Mitsui forecasts profit will drop 22 percent this year to 240 billion yen ($2 billion). Even that target will be tough to reach unless there’s a revival in iron ore and oil prices, said Yasuhiro Narita, an analyst at Nomura Holdings Inc. in Tokyo.
“Mitsui has talked of bolstering its non-resources areas for a while. I’d like to see evidence of that in the earnings,” said Narita.
Since becoming CEO, Yasunaga said he has met with counterparts in Asia and elsewhere to find partners to help build platforms to expand non-resource businesses.
These may not be new companies for Mitsui, but rather conglomerates with which it has ties in other fields, he said. He declined to elaborate on specifics of the talks.
Mitsui also plans to invest in ventures around energy and mining projects, such as maintenance, machinery and leasing services, Yasunaga said.
That includes the Moatize coal mine, rail and port project in Mozambique. Mitsui agreed in December to pay Vale SA $763 million to join the project, taking only 15 percent equity in the mine but 35 percent in the associated infrastructure.
“Besides hauling coal, we could be handling food and other cargo that will be in demand as Africa develops,” Yasunaga said. “We want to be a part of that expansion and support it with logistics and transportation.”
Betting that the U.S. is another place where investments in transport and infrastructure will pay off, Mitsui in January paid $750 million for 20 percent of Penske Truck Leasing Co., the biggest U.S. operator in its field.
Such investments are more attractive than most of the energy assets on the market, he said.
Crude oil prices fell to below $50 in January, down about 60 percent from a June peak. Yasunaga said the decline was overdone and he expects prices to come back.
While he wouldn’t wager when, he said deals based on high oil prices are not interesting to Mitsui right now. Last month, Royal Dutch Shell Plc offered to buy BG Group Plc for $70 billion, partly based on an assumption of oil averaging $90 a barrel in 2018.
“We’re not thinking about an investment based on high oil prices at the moment,” Yasunaga said. “We’re going to be very picky and there aren’t too many candidates around.”