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Sumitomo swings to loss, cuts forecast as writedowns mount

Bloomberg

Sumitomo Corp. swung to a net loss in the third quarter and cut its full-year profit target by more than half as impairments on the value of its resources investments widened amid the slump in commodity prices.

Net income is estimated at ¥100 billion for the year through March, below its October forecast of ¥230 billion, the Tokyo-based trading house said in a statement. Sumitomo last month withdrew its profit target after announcing a ¥77 billion writedown on its Madagascan nickel project. The company said Friday that full-year impairments would likely rise to ¥170 billion.

Sumitomo joins a swath of commodity companies in posting writedowns due to faltering Chinese demand, sliding raw materials prices and the global oil glut. Sumitomo Metal Mining Co., the smelter that shares the trade house’s name, slashed its full-year net income forecast on Friday by 93 percent to ¥5 billion after posting a charge of ¥68.9 billion on its Sierra Gorda copper mine in Chile, a project in which Sumitomo Corp. is a partner.

Sumitomo Corp. Chief Financial Officer Hiroyuki Inohara told a briefing in Tokyo that third-quarter impairments totaled ¥111.6 billion, including charges against Sierra Gorda, its South African iron ore business and Madagascan nickel. Further writedowns in the fourth quarter are likely on Australian coal, Brazilian iron ore and its North American pipe business, he said.

Sumitomo Corp. is one of Japan’s top five general trading houses, known as sogo shosha, that have invested heavily in the energy and metals that fuel Japan’s industrial machine. The company had anticipated its profit would recover by expanding its non-resources businesses, after last year saw a big charge against a U.S. oil project and its first annual loss since 1999.

Sumitomo reported a third quarter net loss of ¥68 billion, from a profit of ¥28.1 billion a year earlier, according to its statement, as sales over the nine months fell 9 percent.

Earlier this week, JX Holdings Inc., Japan’s largest oil refiner, said it expects a $2 billion impairment on its copper and energy businesses, while last month the world’s biggest miner, BHP Billiton Ltd., announced a $4.9 billion charge against its U.S. shale unit.

Mitsubishi Corp., the nation’s top trading company, earlier this week left its full-year profit target unchanged, although it said the value of its commodity assets is under review, while No. 2 trader Mitsui & Co. cut its forecast by 21 percent.