Mitsui Sees First Loss Since 1947 Amid $2 Billion Writedown

  • Japanese company sees 225 billion yen in commodity writedowns
  • Impairment charges include Browse LNG project in Australia

Mitsui & Co., Japan’s second biggest trading house, forecast its first net loss since it was founded in its modern form in 1947 due to impairment charges on mining and energy projects from South America to Australia.

The Tokyo-based trading house expects a net loss of 70 billion yen ($623 million) in the fiscal year ending March after booking impairment charges of 225 billion yen on assets including the Browse LNG project in Australia and the Caserones copper development in Chile, according to a statement Wednesday. Mitsui previously forecast net income of 190 billion yen.

“Unless commodity prices rebound and stay stable, there is a chance for further impairments,” Thanh Ha Pham, an analyst at Jefferies Group LLC, said by phone. “When most of the trading houses invest in an asset, they look at the current price and they interpolate it for the foreseeable future. When things were very good that made sense, now those price assumptions are unrealistically high.”

The global commodity slump is squeezing the “sogo shosha,” or general trading houses like Mitsui and Mitsubishi Corp. that supply everything from gasoline and steel to seafood and noodles in resource-poor Japan. They invested in metals and energy only to see prices fall.

“The impairment charges have been incorporated in all of our business areas,” Mitsui President Tatsuo Yasunaga told reporters on Wednesday. “We will exhaust all means in order to return to profitability.”

Almost every major raw material is worth less now than two years ago, from iron ore to oil to crops and base metals. The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has tumbled almost 40 percent over the period, touching the lowest level since 1991 in January.

The downturn in oil prices led to the decision on Wednesday to scrap plans to develop the $40 billion Browse liquefied natural gas project in Australia. Mitsui owns a minority stake in the project.

Over two-thirds of Mitsui’s profit comes from its resource business, such as oil, iron ore, coal and gas trading. For every dollar drop in the price of crude, Mitsui’s profit falls by about 2.7 billion yen, according to a company presentation in November.

The company reported a total of 260 billion yen in one-time charges, which include a consolidated loss of 35 billion yen from an impairment at a Brazilian mining company.

Mitsui’s stock fell 1 percent to 1,405 yen in Tokyo on Wednesday. Its stock has dropped 17 percent over the last 12 months.

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