Japan’s biggest-trading house has had its fill of commodities. After posting the first annual loss in its 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 price 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 ¥426bn ($4.24bn) in impairment charges and other losses primarily on its commodity assets.
The company is aiming to shore up its profits by moving away from resources and into areas such as real estate procurement and automobile sales.
The company aims to invest ¥1.5tn in its non- resources businesses, which is already worth ¥4.4tn, according to Masu. The company will invest ¥500bn in resources over the next three years, and ensure that energy and commodities assets remain at the current ¥3tn 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% ownership of an Indonesian nickel mine for about €100mn ($113mn) to Eramet SA. Meanwhile, the Japanese trading house earlier this month said it acquired a minority stake in US solar energy firm Nexamp.
Mitsubishi posted net income of 100.8bn yen in the three months ended June 30, a 35% jump from a year earlier. The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has increased 16% since tumbling earlier this year to a 25-year low. The gauge is down more than 30% in the last two years.
Mitsubishi added 2.9% to ¥2,161.5 in Tokyo trading last week, compared with the benchmark Topix index which rose 2.1%.
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 August 23.
The company shored up its Australian coal business by lowering costs by about 10% 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 333bn yen this fiscal year.
Mitsubishi’s Masu is cautious. He doesn’t have the confidence yet to increase the company’s annual profit forecast of ¥250bn, he said.
The Mitsubishi Corp headquarters (centre) is seen at night in Tokyo. After posting the first annual loss in its post-World War II history amid the collapse in commodity prices, Mitsubishi is shifting away from raw materials to make sure it never happens again.
