By Yuka Obayashi and Katya Golubkova
TOKYO, May 1 (Reuters) – Some big Japanese trading houses forecast on Friday record annual profits as the U.S.-Israeli war on Iran keeps commodity prices high, while domestic utilities warned of losses as procurement costs spike.
Japan, one of the world’s most vulnerable countries to energy import disruptions, has stepped up diplomatic efforts and pledged billions of yen in public support – from subsidies to a currency intervention – as it tries to cushion the economic shock from the war and the closure of the Strait of Hormuz.
Marubeni Chief Executive Masayuki Omoto said the crisis in the Middle East poses more upside than downside risks to the company’s earnings thanks to higher commodity prices. For the current fiscal year, the firm expects a net profit of 580 billion yen ($3.7 billion), which would be a record.
The forecast represents an increase of 6.6% from last fiscal year’s profit of 544 billion yen, which was also a record.
Mitsui, which like Marubeni counts Warren Buffett’s Berkshire Hathaway as a large minority shareholder, forecast on Friday a 10% increase in net profit for the year ending in March to 920 billion yen, as it expects higher commodity prices and bets on gains from other businesses.
Itochu forecast a 6% increase in annual profit, a third straight year of record profits. Mitsubishi and Sumitomo said they expect fiscal-year net profit increases of 37% and 5%, respectively. Berkshire is also a shareholder in all three.
Mitsubishi said its profit outlook reflects higher commodity price assumptions, “factoring in ongoing geopolitical developments in the Middle East”.
JAPANESE UTILITIES FEEL THE PAIN
Before the Iran war broke out in late February, Japan relied on the Middle East for around 11% of its liquefied natural gas imports, of which 6% passed through the Strait of Hormuz. Australia is Japan’s biggest LNG supplier.
Despite being secure with their LNG supplies for now, thanks to alternative sources and solid 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 fiscal year, while the rest withheld guidance, amid uncertainties over the fuel price outlook.
($1 = 157.1800 yen)
(Reporting by Katya Golubkova and Yuka Obayashi; Editing by Tom Hogue, Thomas Derpinghaus and Muralikumar Anantharaman)
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