Paper Pulp Beats Oil as Itochu Sees Profit Passing Top Rival

  • Oil and metal price slumps cloud Mitsubishi earnings forecast
  • Itochu ended U.S. shale foray this year after writedowns

Tires and paper pulp are positioning Japan’s Itochu Corp. to pass its rival Mitsubishi Corp. in annual profit.

Itochu, Japan’s third-largest trading house, forecast net profit of 330 billion yen ($2.7 billion) for the year ending March, while Mitsubishi, the country’s largest, estimates earnings of 300 billion yen, according to separate filings Thursday. It would be the first time Itochu earns more in a year than Mitsubishi, data compiled by Bloomberg going back to fiscal year 1991 show.

The difference is Itochu ended its foray into U.S. shale this year and has focused on businesses that benefit from low commodity prices. Mitsubishi, which has oil and gas operations in the U.S. Gulf of Mexico and in the U.K.’s North Sea, slashed its earnings forecast from an earlier estimate by 60 billion yen, primarily because of lower energy and metals prices.

“Our earnings are very strong mainly due to our steady non-resources business,” Itochu Chief Financial Officer Tsuyoshi Hachimura said at a briefing in Tokyo Thursday. “We were able to compensate for the 50 percent drop in natural resource prices.”

China’s slowest economic growth in more than two decades has weakened demand for commodities from copper to coal as the U.S. shale boom adds to a global surplus of oil and natural gas. Crude has slumped about 40 percent the past year and liquefied natural gas for delivery to Northeast Asia plunged more than 60 percent from a record in February 2014, according to prices from Energy Intelligence Group.

Itochu forecasts 87 percent of profits for the year ending March will come from non-resource related businesses that include paper pulp operations in Brazil and a tire-sales business in the U.S., Europe and Russia.

Mitsui & Co., Japan’s second-biggest trading house, confirmed a previous forecast for net profit in the year ending March of 240 billion yen. The Tokyo-based company said profits from energy-related business in the six months through September fell 77 percent to 26.2 billion yen, citing a decline in oil and gas prices. Overall net profit declined 41 percent during the same period.

Itochu added 1.9 percent to 1,546.5 yen, the highest settlement since Aug. 11. Mitsubishi fell 0.5 percent to 2,025 yen and Mitsui lost 0.4 percent to 1,506 yen. The benchmark Topix index rose 0.6 percent.

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