Mitsui eyes raw materials projects overseas

by Ichiro Suzuki

Bloomberg

Mitsui & Co., the nation’s second-largest trading house, may increase overseas investment in new projects to secure raw materials after prices dropped, competing with China and South Korea for resources.

The financial crisis has forced some investment funds to sell off assets, increasing opportunities, said Masami Iijima, who became president of Mitsui on April 1, without elaborating.

Japan is vying with China, the world’s biggest consumer of commodities, and South Korea for resources in expectation that raw materials demand will rebound as economies recover. The Reuters/Jefferies CRB Index of 19 commodities fell 4 percent in the last quarter, adding to a 50 percent drop in the second half of 2008 amid the recessions in the U.S., Europe and Japan.

“Falling prices have made it easier for us to consider new investments,” said Iijima, 58, who joined the company in 1974. “We will even invest in projects that may generate a negative cash flow, if the projects warrant our investment 10 years ahead,” he said in an interview Tuesday.

Mitsui’s businesses include trading oil, iron ore, aluminum, soybeans, cars and machinery, investing in liquefied natural gas projects, leasing aircraft and chartering marine tankers.

Mitsui, established in 1876, is one of a handful of diverse trading houses whose origins extend back hundreds of years.

The current earnings environment was “in a severe state” as metals and energy generated 70 percent of profit, Iijima said.

“Our task is to enhance the noncommodity sector” he said. “The proportion of commodities and noncommodities should be 50-50.”

The contribution of minerals and energy to earnings was 60 percent at larger rival Mitsubishi Corp., 53 percent for Marubeni Corp. and 28 percent for Sumitomo Corp. in the year to March 31, 2008, according to Nomura Securities.

Mitsui projected on Feb. 3 that net income would drop 24 percent from a year earlier to ¥310 billion for the 12 months that ended March 31. The company may review its dividend ratio target of 20 percent for the fiscal year that starts April 1, 2010, Iijima said. “We want to consider again what is the best way for stockholders and the company,” he said.

Energy and commodity prices were rebounding, with copper approaching $5,000 a metric ton and oil gaining to around $50 a barrel, and prices may continue to rise in the mid- to long-term, Iijima said. “The market is comfortable with $70 to $90 crude oil” because new developments such as oil-sand projects would occur at that price, he said.

The global economy will benefit from measures agreed on this month by the Group of 20 nations to spur growth and China’s 4 trillion yuan ($585 billion) stimulus package, Iijima said. “The economy will probably hit bottom after July,” he said.

China, the world’s biggest buyer of metals, may spend more than $500 billion on overseas resources investments over the next eight years to secure supplies to drive economic growth, Deloitte Touche Tohmatsu said last month.