Plunging commodity prices are expected to drive losses of around $13 billion on assets held by Japanese trading houses, oil refineries and steelmakers in the current financial year, dealing another blow to a government push to reignite growth.
That figure, based on analyst estimates and Reuters calculations as Japanese commodity firms reported earnings over the past two weeks, would come on top of similar-sized losses on assets in the financial year that ended in March 2015, NewsNow reported.
Markets for everything from oil to iron ore have been hit hard by oversupply and faltering demand as growth slows in China, the world’s No.2 economy.
The expected total losses of about ¥1.54 trillion ($13.2 billion) break down to roughly ¥760 billion for oil refineries, ¥630 billion for trading houses and 150 billion at steel mills, key parts of Japan’s resource-reliant economy.
“The top five trading firms may write down a total of about ¥630 billion in net impairment losses on their resource assets this business year,” said Hiroyuki Sakaida, equity analyst at Goldman Sachs Japan. “Their spending on upstream assets will be shrinking.”
Losses
Japan’s trading houses fulfill a quasi-national role by importing everything from oil to corn.
Sumitomo Corp wrote down ¥111.6 billion on its metal assets from April to December, including ¥77 billion on a nickel mine in Madagascar.
Other impairment losses at trading houses related to energy and metals for the nine months include ¥73 billion at Marubeni Corp, ¥22 billion at Mitsui & Co and ¥22 billion at Itochu Corp.
Mitsubishi Corp has not recorded writedowns, but Chief Financial Officer Shuma Uchino warned on Tuesday the company would “make careful evaluation of our resource assets at the end of the business year to reflect falling resource prices”.
Still, the trading houses forecast annual net profits ranging from ¥100 billion to ¥330 billion, buoyed by non-resource operations such as machinery.
Meanwhile, oil refiners including JX Holdings and Idemitsu Kosan are expected to post over ¥500 billion in inventory losses in the year to March, according to Reuters calculations based on company estimates. That follows a ¥792 billion loss the previous year.
If impairment losses on upstream projects are added, the losses could balloon to around ¥760 billion this year.
Elsewhere, the country’s top three steelmakers cut their annual profit forecasts for a second time in three months as lower prices for iron ore and coking coal forced a total of ¥128 billion of inventory losses and write downs for April-December.
But plunging oil prices have helped utilities, with Tohoku Electric Power forecasting a record annual profit, while Kansai Electric Power and Kyushu Electric Power project their first profits in five years.
