Mitsui Expects to Post Annual Loss

TOKYO--Mitsui & Co. said Wednesday that $2.3 billion in write-downs would result in the first annual loss in its 69-year history, as a global commodity slump takes a toll on Japanese trading houses.

Mitsui, which prides itself on picking high-margin assets, said it would write down ¥ 260 billion ($2.3 billion) on Chilean copper mines and other resources. It now forecasts a loss of ¥ 70 billion for the financial year ending March 31, versus a previous profit forecast of ¥ 190 billion.

Mitsui isn't the only trader feeling the pain after prices on commodities from metals to natural gas collapsed last year, a result of a sharp decline in Chinese demand. In fact, Mitsui's move puts pressure on Japan's biggest trading house, Mitsubishi Corp., to book a similar impairment on its own exposure in the same Chilean copper project.

Depending on how company executives and auditors value the assets, Mitsubishi's expected impairments could wipe out its previously forecast profit of ¥ 300 billion, analysts said.

"Some say we should book an impairment loss of ¥ 400 billion or even ¥ 500 billion," a company executive said. Those numbers seem "excessive," he said, but Mitsubishi is taking a hard look at its assets to see how much each adds to the company's cash flow and strategy, he said.

"We are assessing our investments and will make an announcement promptly, if necessary," a Mitsubishi spokesman said.

In 2011, Mitsubishi paid $5.39 billion for a 24.5% stake in copper mining and smelting firm Anglo American Sur SA, which produced 437,700 tons of copper last year. That stake fell to 20.4% when Mitsui and Chilean partner Codelco took a combined 29.5% stake in 2012, but Mitsubishi's exposure is still about ¥ 400 billion.

At issue is how to evaluate the mines, given the chronic slump in copper prices. China made up about half of global copper demand in the first 11 months of last year, and its appetite isn't expected to rebound soon, according to the World Bureau of Metal Statistics.

The slump in commodity projects prompted credit rating firm Moody's Investors Service to slash the debt rating on Anglo American PLC, the parent company of Anglo American Sur, to junk status last month.

"Mitsubishi had invested heavily for the past four years, but hasn't been successful in generating sufficient returns from these investments," Moody's senior analyst Masako Kuwahara said. She downgraded Mitsubishi's rating outlook to negative from stable earlier this month.

Mitsui said it would book a ¥ 90 billion impairment on the Anglo American Sur project, and ¥ 25 billion in other copper projects in Chile.

Mitsubishi could book an impairment loss of ¥ 200 billion on its copper and iron-ore holdings and other assets, said CLSA analyst Naoto Saito. But when Mitsubishi reveals the damage caused by the commodity rout it may be the time to buy the stock, he said.

Mitsui, Mitsubishi and other Japanese trading firms are likely to try to stay the course from here. With large stashes of cash and healthy cash flow from nonresources business, they can afford to try to weather the slump.

Mitsui, which in October closed its precious-metals business in London, New York, and Hong Kong, on Wednesday promised to cut costs and continue investing in high-margin businesses. It has stopped short of the kind of aggressive restructuring pledged by Anglo American in February.

"These one-time losses are from businesses that can make cash, and we expect the businesses to recover when the commodity market bounces back," Mitsui President Tatsuo Yasunaga said. "We will continue with acquisitions."

Write to Mayumi Negishi at [e-mail] and Megumi Fujikawa at [e-mail]

(END) Dow Jones Newswires

March 23, 2016 09:05 ET (13:05 GMT)

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