TOKYO -- Falling prices of natural resources are dealing a heavy blow to Japan's five major trading houses, with their resultant impairment losses expected to reach roughly 300 billion yen ($2.47 billion) for the year ending March 31.
At Sumitomo, impairment losses tied to resource development projects are now projected to exceed 100 billion yen. In addition to the 77 billion yen the company already announced Jan. 13 on a nickel project in Madagascar, losses are likely in copper development in Chile and at a U.S. steel pipe subsidiary being hit by stalled oil development.
These losses will eat into Sumitomo's bottom line. Net profit for fiscal 2015 will likely come to slightly more than 100 billion yen, half the initial forecast.
Mitsui & Co. will likely chalk up an impairment loss of around 20 billion yen on a copper project in Chile. Moreover, crude oil and natural gas projects are expected to add losses. The company expects a 22% drop in net profit to 240 billion yen this fiscal year, and the figure could shrink by tens of billions of yen more.
Marubeni's impairment losses will come from projects including oil development in the North Sea and Gulf of Mexico and are likely to total some 70 billion yen.
Similarly, Mitsubishi Corp. and Itochu are expected to suffer losses amounting to more than 20 billion yen each. Still, Itochu will likely report a record net profit of 330 billion yen for fiscal 2015, up 10%, as operations unrelated to resources give it a leg up.
All the losses could grow further should resource prices keep falling. The five trading houses booked a total of some 700 billion yen in impairment losses last fiscal year.
Source: Nikkei - Feb 1, 2016