Sumitomo warns on commodity prices as writedowns mount

[TOKYO] Sumitomo Corp warned it doesn't expect commodity prices to recover over the next two years, after the Japanese trading house swung to a net loss in the third quarter and cut its full-year profit target by more than half due to mounting impairments.

Net income is estimated at 100 billion yen (S$1.2 billion) for the year through March, below its October forecast of 230 billion yen, the Tokyo-based company said in a statement. Sumitomo last month withdrew its profit target after announcing a 77 billion yen writedown on its Madagascan nickel project. The company said Friday that full-year impairments would likely rise to 170 billion yen.

Sumitomo joins a swathe of commodity companies in posting writedowns due to faltering Chinese demand, sliding raw materials prices and the global oil glut. Sumitomo Metal Mining Co, the Japanese smelter that shares the trade house's name, slashed its full-year net income forecast on Friday by 93 per cent to 5 billion yen after posting a charge of 68.9 billion yen on its Sierra Gorda copper mine in Chile, a project in which Sumitomo Corp is a partner.

Sumitomo Corp chief financial officer Hiroyuki Inohara told a briefing in Tokyo that third-quarter impairments totaled 111.6 billion yen, including charges against Sierra Gorda, its South African iron ore business and Madagascan nickel. Further writedowns in the fourth quarter are likely on Australian coal, Brazilian iron ore and its North American pipe business, he said.

"We don't expect resources prices to recover in 2016 or 2017," said Mr Inohara. "The outlook is getting more uncertain," he said, citing the slowdown in China and flows of capital from emerging markets. Still, the company remains committed to its resources businesses due to the mid to long-term outlook for demand, he added.

Sumitomo Corp is one of Japan's top five general trading houses, known as sogo shosha, that have invested heavily in the energy and metals that fuel Japan's industrial machine. It had anticipated profit would recover by expanding its non-resources businesses, after last year saw a big charge against a US oil project and its first annual loss since 1999.

The company reported a third-quarter net loss of 68 billion yen, from a profit of 28.1 billion yen a year ago, according to its statement, as sales over the nine months fell 9 per cent. Its shares in Tokyo close 4.5 per cent higher, while Sumitomo Metal Mining rose 5.7 per cent.

Earlier this week, JX Holdings Inc., Japan's largest oil refiner, said it expects a US$2 billion impairment on its copper and energy businesses, while last month the world's biggest miner, BHP Billiton Ltd., announced aUS $4.9 billion charge against its US shale unit.

Mitsubishi Corp, Japan's top trading company, left its full-year profit target unchanged, although it said the value of its commodity assets is under review, while No 2 trader Mitsui & Co cut its forecast by 21 per cent. Marubeni Corp, the last of the sogo shosha to report earnings, maintained its net income forecast on Friday and saw its shares jump after it promised higher dividends.

BLOOMBERG