* Trading houses shift investment focus towards non-resource
* Uncertain economy, lower commods prices, steer firms to
* Japan's 5 biggest traders spent over $80 billion between
By James Topham
TOKYO, Nov 15 Japan's giant trading houses plan
to scale back investments in new energy and mineral assets due
to weaker than hoped for returns and focus instead on consumer
goods, infrastructure and machinery for growth.
The shift away from past years of heavy spending on
resources is an attempt by the trading houses to broaden their
revenue streams, stem profit declines and boost their lagging
Fuelled by what was a strong yen, ample opportunities and
often deeply discounted prices, the firms, known as sogo shosha,
have pumped in $83 billion over the past three years on
everything from U.S. shale gas fields to copper mines in Chile.
But with China's economic growth slowing, the Japanese yen
nearly a quarter weaker than a year ago, and raw material prices
under pressure, the allure of resource assets has dimmed.
Mitsubishi Corp, Mitsui & Co, Marubeni
Corp, Itochu Corp and Sumitomo Corp
have so far earmarked more than 7 trillion yen ($70.41 billion)
for total investments by early 2016, according to their current
strategic business plans. (For a FACTBOX, click )
They have strong credit profiles and $48 billion cash on
hand at the end of September.
"After several large-scale resource investments have not, at
least initially, reaped the returns envisioned, Japanese trading
houses are looking to make less investments in resources than
previously," said Penn Bowers, an analyst who covers the trading
houses for CLSA Asia-Pacific Markets.
Itochu, for example, spent $1.5 billion in 2011 for a 20
percent stake in the Colombian business of coal mining firm
Drummond Co, but the stake only contributed 3.5 billion yen
($35.21 million) in net profit for the business year that ended
in March amid shrinking coal prices. The investment was expected
to contribute even less in the current business year.
Instead, the firms "have shifted their focus to developing
existing assets and increasing purchases in non-resource
fields," Bowers said.
Recent purchases, including Marubeni's $800 million deal for
a majority stake in Japan mobile phone retailer NEC Mobiling and
Mitsui buying around a 20 percent stake in a New York City
natural gas plant, illustrate the new focus.
"From the outset, Itochu wants resources to make up about 30
percent of its balance sheet," said CFO Tadayuki Seki during an
earnings briefing last week.
"Right now, resources already make up about 30 percent of
the balance sheet, so the thinking is that we don't want to ruin
Brent crude oil is down 2.5 percent this year,
copper is off 12.2 percent, gold has lost nearly
a quarter of its value, iron ore .IO62-CNI=SI has shed nearly
6 percent and coal has dipped 8.5 percent.
The trading houses, except Marubeni, saw profit declines in
the business year that ended in March due mostly to the fall in
And recent earnings have only increased the allure of
non-resources. Investments in that area, along with the weaker
yen that boosted earnings from overseas assets when repatriated
and equity sales, helped all the firms, except Sumitomo, to post
rises of more than 20 percent in first-half net profit.
Besides investments in new areas such as food, healthcare
and power, firms are also looking to lift stakes in existing
assets they find promising.
That was the thinking when Mitsubishi, Japan's biggest
trader, lifted its stake in Brazilian grain company Los Grobo
Ceagro do Brasil to 80 percent from 20 percent this past summer.
"Fundamentally (for the 2015 management strategy) we are
looking to increase the profitability of existing assets,"
Mitsubishi CFO Shuma Uchino told an earnings briefing this
All of the major trading firms are looking to spend less on
resources going ahead, except Mitsui, which receives the highest
contribution from resources in its earnings of the companies.
Shares of the trading houses are up between 10 percent and
40 percent so far in 2013, underperforming a 46 percent gain on
the main Japanese stock index.
($1 = 99.4150 Japanese yen)
(Editing by Aaron Sheldrick, Simon Webb and Muralikumar