TOKYO -- Japanese trading houses Mitsubishi Corp. and Mitsui & Co. are both expected to log their first-ever group net loss in the fiscal year ending March 31 on impairment losses on resource projects, highlighting the need to overhaul lopsided earnings structures.
Mitsubishi is seen falling more than 100 billion yen ($887 million) in the red. It likely suffered impairment losses of over 400 billion yen, including from Chilean copper concessions acquired from U.K.-based Anglo American in 2012 as well as a liquefied natural gas stake bought that same year from an Australian company.
The trading house will reassess the earnings potential of all resource development projects and will focus on expanding businesses other than resources next fiscal year and beyond. The company will release downgrades to its forecast as early as Thursday.
Mitsui said Wednesday that it expects a net loss of 70 billion yen. The company is booking about 260 billion yen in impairment losses, roughly 115 billion yen of which came from two copper development projects in Chile. One project was a joint venture with state-owned Corporacion Nacional del Cobre de Chile, or Codelco, and the other led by a coalition including Japanese oil distributor JX Holdings. Mitsui decided it would be difficult to recoup its investments, given that copper prices have dropped 20% in the past year.
The company suffered impairments on LNG and coal projects in Australia, as well as on a nickel development project by Brazilian mining giant Vale, in which Mitsui indirectly holds a stake.
"We included every necessary impairment, based on tough third-party price forecasts," Mitsui President Tatsuo Yasunaga said. The company will focus on auto sales and leasing, hospital management and other stable income sources in the future.
Sumitomo Corp. also is seen booking 170 billion yen in impairment losses for the year ending March 31. The total among Japan's top five trading houses is expected to reach almost 1 trillion yen, rising from 700 billion yen for the year ended in March 2015.