What a Difference Oil Price Makes as Marubeni Joins Writedowns

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“I couldn’t believe that oil would drop this far,” said Marubeni Corp. Chief Executive Officer Fumiya Kokubu.

And this from a man who spent more than a decade trading energy and picking oil and gas deals in a 39-year career at the Japanese trading house.

His confession of sorts came at a Monday afternoon Tokyo press conference where he announced that getting blindsided by oil was a major factor wiping out half of Marubeni’s 220 billion yen ($1.9 billion) profit forecast for this year.

Marubeni joins domestic peer Sumitomo Corp. in feeling the pain. In October, Sumitomo wrote down 167 billion yen in the six months to Sept. 30 on losses in shale oil and coal, reporting its first half-year loss since 1998.

In recent years, Japan’s top five trading houses have been shifting focus into food, retail and transport business and away from raw industrial materials. The shift doesn’t seem to have been fast enough. The five could face as much as $13 billion in writedowns on mining and energy assets, according to Daiwa Securities Group Inc.

On Monday, Marubeni said its $1 billion writedown includes North Sea and Gulf of Mexico oil and gas, Chilean copper, and Australian coal assets. It added in grain business Gavilon Holdings LLC, acquired for a record $2.7 billion in 2013.

Gavilon didn’t integrate into Marubeni’s grain trading operations as expected so a rethink is needed, Kokubu said.

Next Week

Marubeni is due to report its financial results for the nine months ended Dec. 31 next week.

The company is keeping its sales, operating profit and dividend forecasts for the year unchanged, Kokubu said.

Marubeni’s stock dropped on Monday, closing off 4.7 percent at 671.2 yen.

Brent crude oil has dropped 57 percent since June to around $48 a barrel owing to excess global supply. Kokubu said he doesn’t see much of a rebound in price in the next two or three years.

Kokubu, who rose through the ranks of Marubeni’s petroleum and gas divisions to serve among other roles as energy adviser to his predecessor Teruo Asada.

Asada and Kokubu will take a 50 percent pay cut for two months before being joined by other top executives for a 30 percent pay cut for the fiscal year that runs from April 1 to March 31 next year.

Still, Marubeni, which relied on energy and mining for about 30 percent of its net income last year, will not abandon its strategy of looking at resource projects, Kokubu said.

“The key point about commodities is having cost-competitive assets,” he said. “If we come across an attractive asset, I will still consider it.”

Kokubu said Marubeni will aim for net income of 200 billion yen next year. The previous target was 250 billion yen.