Japan's Top Trading Houses Post First Net Losses as Prices Slump

  • Mitsubishi, Mitsui post combined losses of 232.8 billion yen
  • Trading houses looking to shift away from commodities

Japan’s two biggest trading companies, long-time stalwarts of the nation’s economy, posted annual losses for the first time ever, racking up a combined deficit of 232.8 billion yen ($2.14 billion) amid a rout in raw materials prices that’s intensifying their need to shift to more promising markets such as health care and food.

Mitsubishi Corp., the nation’s largest trading house by market capitalization, had a net loss of 149.4 billion yen in the 12 months ended March 31, its first on a group basis since the company’s founding in its current form about 60 years ago. Mitsui & Co., the nation’s second-biggest trader, posted a net loss of 83.4 billion yen.

The losses illustrate the predicament Japan’s “sogo shosha,” or general trading houses, find themselves in after investing heavily in metals and energy at the height of the commodities boom, only to see prices tumble. The companies, which supply everything from gasoline to noodles in resource-poor Japan, are now scrambling to diversify businesses and assets away from energy and mining projects.

Tokyo-based Mitsubishi, anticipating that oil prices will remain stagnant for the next three years, will strengthen its non-resource businesses, while Sumitomo Corp. -- which missed its profit target for the previous fiscal year -- aims to exit businesses with low profit potential and growth prospects. Mitsui last year said it will look to food- and medicine-related businesses to boost earnings.

Itochu Corp., Japan’s third-biggest trader by market value, last week said it posted net income of 240.4 billion yen last fiscal year, the highest profit among the traders due to its diversification out of commodities and energy. In a presentation on Friday, the company forecast net income will reach a record 350 billion year this fiscal year.

Commodities Rout

Almost every major raw material is worth less now than two years ago. The Bloomberg Commodity Index, a measure of returns from 22 items, has tumbled about 40 percent in that period, touching the lowest level since at least January 1991.

Writedowns have added further pressure to balance sheets as business units struggle to turn a profit. Mitsubishi booked an impairment charge of 426 billion yen on its metals and energy businesses, while Mitsui had 284.4 billion yen worth of writedowns. Sumitomo booked a total of 195.1 billion yen in impairment losses, primarily on mining projects.

Mitsubishi’s shares traded in Tokyo rose as much as 4.4 percent after the company said that it projects dividends to be 60 yen per share in the current fiscal year, higher than the 50 yen Bloomberg estimate.

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