Three of Japan’s big five trading companies posted record annual profits on Monday, while warning that sluggish demand for commodities in developed economies would weigh on their performance in the year ahead.
Japan’s trading companies invest in hundreds of businesses ranging from noodles to hospitals round the world, but natural resources are their core. Thanks to recent rises in prices of iron ore, coal and oil, combined net profits for the five traders are expected to top Y1.62tn ($20.3bn) for the year to March, 10 per cent better than the previous high four years ago.
Now, though, the traders are using their cash-rich balance sheets to accelerate diversification efforts, in anticipation of lower commodity prices ahead.
At Mitsui & Co, for example, the second-largest trader by equity value, mineral resources and energy accounted for 90 per cent of a record Y434bn in net income in the year to March 2012.
However, more than two-fifths of gross capital investment in the current fiscal year will be going into other areas such as power projects and chemicals. “We’re more comfortable when our earnings portfolio is more balanced,” said a Mitsui executive.
Mitsui said on Monday that softening coal, oil and iron ore markets would cause group profits to fall 8 per cent in the year to March 2013. Sumitomo Corp, Mitsui’s smaller rival, predicted a 4 per cent rise in net income to Y260bn in the current fiscal year, but said that this would be driven by emerging-market related businesses, such as infrastructure and media. Sumitomo is the least reliant of Japan’s big traders on energy and metal earnings.
Mitsubishi Corp and Itochu Corp, numbers one and four by equity value, are expected to make similar noises on Tuesday, as they announce their best figures for the fiscal year to March.
Marubeni Corp, the fifth-biggest trader, said on Monday that net income would rise 16 per cent this year, despite slowing growth in emerging markets and a “stagnating” European economy. Energy and minerals accounted for slightly more than half of net income in the year to March, as the group saw strong growth in divisions specialising in power projects and transport machinery.
“We’re growing through having a good balance between resource and non-resource business,” Teruo Asada, Marubeni’s chief executive, told reporters in Tokyo.
The trader, which handles the biggest grain volume among peers, is interested in making a bid for US grain trader Gavilon, Mr Asada said. The owners of unlisted Gavilon have been seeking a valuation of at least $5bn for the business, according to industry executives.