Japan’s biggest-trading house has had its fill of commodities.
After posting its first annual loss in post-World War II history amid the collapse in commodity prices, Mitsubishi Corp. is shifting away from raw materials to make sure it never happens again. That process is going to take at least three years, according to Chief Financial Officer Kazuyuki Masu.
“We can’t post a second net loss,” Masu said in an interview in Tokyo. “We are balancing our portfolio so that if the prices of resources fall again, we won’t be seeing red. To put it simply, we aren’t going to boost our current balance of resources assets” over the next three years.
Tokyo-based Mitsubishi reported a net loss in the year ended March 31 after racking up ¥426 billion ($4.24 billion) in impairment charges and other losses primarily on its commodity assets. The company is aiming to shore up profits by moving away from resources and into areas such as real estate procurement and automobile sales.
The company aims to invest ¥1.5 trillion in its non-resources businesses, which are already worth ¥4.4 trillion, according to Masu. The company will invest ¥500 billion in resources over the next three years, and ensure that energy and commodities assets remain at the current ¥3 trillion level during that period, he said.
“If we invest in something, we have to sell something” from the resources business, he said.
In April, Mitsubishi agreed to sell its 30 percent ownership in an Indonesian nickel mine for about €100 million ($113 million) to Eramet SA. Earlier this month, however, the major trading house said it acquired a minority stake in U.S. solar energy firm Nexamp Inc.
Mitsubishi posted net income of ¥100.8 billion in the quarter ended June 30, a 35 percent jump from a year earlier. The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has increased 16 percent since tumbling earlier this year to a 25-year low. The gauge has dropped more than 30 percent over the past two years.
Mitsubishi expects Dubai crude to trade between $40 and $45 this fiscal year, Masu said. A recovery in oil prices won’t boost profit until at least the end of the current fiscal year or next year, he said.
Mitsubishi’s previous quarterly results “were a positive surprise, and in terms of fundamentals, the company turned a profit in its Australian coal business for the first time in five quarters, which we view as a major turning point,” Kazuhisa Mori, an analyst at JPMorgan Chase & Co. in Tokyo, said in a research note dated last Tuesday.
The company shored up its Australian coal business by lowering costs by about 10 percent compared with a year earlier, according to Mitsubishi’s Masu.
JPMorgan expects Mitsubishi to raise its profit forecast by a “wide margin” due to an increase in the price of coal, and estimates profits will reach ¥333 billion this fiscal year.
Mitsubishi’s Masu is cautious. He doesn’t have the confidence yet to increase the company’s annual profit forecast of ¥250 billion, he said.
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