Energy rout fells Japan's venerated 'Big Three' trading giants

The energy price collapse is doing in Japan what the Great Depression and two world wars couldn’t: put an end to a century of dominance by its three most prestigious companies.

The trading house descendants of Mitsubishi, Mitsui and Sumitomo, which have dominated the nation’s economy for more than 100 years, have seen their profits topped by lesser-known rival Itochu Corp. And analysts predict the firm will be the leading earner until at least fiscal 2018.

Since the end of World War II, Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. have lived on as the nation’s “Big Three” trading companies. They invested in commodities, from shale oil and gas to coal and copper, which led to enormous writedowns when prices began to plummet over the past few years. With the value of their assets in free fall, Mitsubishi and Mitsui were forced last fiscal year to post their first net losses ever.

By contrast, Itochu’s decision to heavily invest in non-resource businesses earlier this decade helped its profits overtake the three powerhouses. Between fiscal 2011 and 2015, Itochu’s profit from its non-resources businesses — which range from fresh produce distribution to call center operations — skyrocketed fourfold to ¥317.2 billion ($3.1 billion).

Itochu is “becoming a force people are going to have to deal with,” Thanh Ha Pham, an analyst at Jefferies Japan Ltd., said by phone from Tokyo. “They grew their non-resources businesses, and their forecast for resources was quite constant. It has a different corporate culture, it has a different way to do business.”

Itochu is forecast to post a profit of ¥350 billion for the fiscal year ending March, topping all of the country’s other trading houses for a second year in a row, according to filings this week.

It isn’t just analysts and investors that have taken notice of Itochu’s newfound dominance. A job at Itochu is the third-most sought after among college students graduating in 2017, according to a poll conducted by Rakuten Inc. Mitsubishi ranked 18th, Mitsui was 35th and Sumitomo was 49th.

Mitsubishi and Mitsui have said they will shift focus toward non-resource businesses, following in Itochu’s footsteps. The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has dropped about 35 percent over the last two years. Oil has lost about 60 percent.

While Itochu is expected to lead the pack on an annual basis, they’ve slipped in the latest quarter. Mitsubishi, the largest trader, with roots dating back to the 19th century, saw profits jump 35 percent to ¥100.8 billion for the quarter ended June, while Itochu’s slid to ¥73.1 billion. Mitsui had a profit of ¥61.1 billion for the same period, while Sumitomo’s was ¥22.7 billion.