Japan's big trading houses expect record profits but utilities forecast pain as Iran war weighs
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TOKYO, May 1 : Some big Japanese trading houses forecast on Friday record annual profits as the U.S.-Israeli war on Iran keeps commodity prices high, while Japanese utilities warned of weaker earnings as fuel procurement costs spike.
Japan, one of the world's most vulnerable countries to energy import disruptions, has intensified diplomatic efforts and pledged billions of yen in support - from subsidies to currency intervention - to cushion the economic shock from the war and the closure of the Strait of Hormuz.
Trading house Marubeni's Chief Executive Masayuki Omoto said the Middle East crisis presents more upside than downside risks to earnings thanks to higher commodity prices. The company forecast a net profit of 580 billion yen ($3.7 billion) for the current fiscal year, up 7 per cent year-on-year and marking a second consecutive record.
"Our forecast is based on oil price assumptions prior to the war, and if current market conditions persist, there is potential upside of 30–40 billion yen for the year," Omoto told reporters.
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Itochu and Sumitomo also forecast record profits, with earnings projected to rise 6 per cent to 950 billion yen and 5 per cent to 630 billion yen, respectively. Itochu would post a third straight record year, while Sumitomo would mark a second despite its decision to exit the Ambatovy nickel project in Madagascar.
Mitsubishi expects net profit to jump 37 per cent to 1.1 trillion yen on stronger energy earnings while Mitsui forecast a 10 per cent increase to 920 billion yen, supported by higher commodity prices and stronger U.S. shale gas profits.
"We want to capture upside opportunities in the energy sector while remaining cautious," Mitsui CEO Kenichi Hori said.
Warren Buffett's Berkshire Hathaway is a minority shareholder in all five trading houses.
JAPANESE UTILITIES FEEL THE PAIN
Before the Iran war broke out in late February, Japan relied on the Middle East for around 11 per cent of its liquefied natural gas imports, of which 6 per cent passed through the Strait of Hormuz. Australia is Japan's biggest LNG supplier.
Despite having secure LNG supplies for now, thanks to alternative sources and healthy stockpiles, Japanese utilities warned this week that procurement costs would likely rise as many long-term LNG contracts are linked to oil prices. LNG is a key fuel for thermal power generation.
Six of Japan's 10 regional electric utilities, including Kansai Electric Power and Kyushu Electric Power, forecast a drop in profit for the current year, while the rest withheld guidance, amid uncertainties over the fuel price outlook.
($1 = 157.1800 yen)
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