Japan traders Mitsui, Mitsubishi book write-down on oil slump

TOKYO: Japan's top two trading houses Mitsubishi Corp and Mitsui & Co Ltd said on Wednesday they had booked impairment losses on their oil and gas assets in the quarter ended in December due to plunging oil prices.

As a result, Mitsui cut its annual net profit forecast by 16 percent, but Mitsubishi stuck to its estimate, citing healthy earnings from non-resource businesses.

Like international miners and oil majors, Japanese trading firms have been caught flat-footed by the rout in commodities, with oil down more than 50 percent and copper falling over 20 percent since mid-2014.

Their peer Sumitomo Corp warned on Tuesday that it may take further impairment losses on its resource assets, following its surprise forecast last September of a 240 billion yen ($2.04 billion) write-down.

Last month, Marubeni Corp halved its annual profit guidance after plunging oil, copper and coal prices weighed on its resource assets.

Mitsui on Wednesday posted a 20-percent drop in net profit for the April-December period after writing down 48 billion yen in the value of its energy assets, including 39 billion yen on its Eagle Ford shale oil project in the United States and 9 billion yen on North Sea oil and gas project.

"We didn't expect oil prices to fall by this much," Mitsui Chief Financial Officer (CFO) Joji Okada told a news conference.

"We can't tell if oil prices will go further down or stay at the current level, but no major rebound is expected for the time being."

Okada said oversupply in iron ore market will continue through 2020, but copper is likely to rebound earlier on solid demand for infrastructure and limited supply.

Mitsui now predicts a 9-percent fall in annual profit from a year earlier at 320 billion yen, instead of its previous estimate of a 9-percent gain.

Meanwhile, Mitsubishi booked an impairment loss of 35 billion yen, which includes 23 billion yen on the Cordova shale gas project in Canada and 12 billion yen on a North Sea oil asset.

But the company kept its full-year profit forecast unchanged at 400 billion yen despite an estimated write-down of 60-70 billion yen on its energy and metal assets over the full year.

"Chances are fairly high for us to achieve our annual profit target," CFO Shuma Uchino said, adding non-resource segments such as machinery and infrastructure would cover the weak resource performance.