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Japanese trading houses on the prowl as record earnings boost appetite
[TOKYO] Japan's trading houses are scouting for assets as they enjoy their best profit outlook in six years, driven by higher prices for commodities from metals and coking coal to oil and natural gas.
Equipped with a nearly US$50 billion war chest, trading houses are looking to bolster their global commodity supply chain networks, eyeing gas fields in Australia, oil in Iraq and coal and copper assets.
But - still smarting from huge writedowns in the last investment cycle - big debt-fuelled acquisitions look to be off the agenda, with the focus on greenlighting undeveloped assets, taking bigger stakes in existing projects, and trading up to better quality operations.
"Now we have a lot of money that we can invest. We didn't invest so much in recent years," said a senior executive from a major trading house on condition of anonymity, declining to be named.
"We want to be in the driving seat in investments. We are searching for good projects," he said.
Known as shosha in Japanese, trading houses led by Mitsubishi Corp and Mitsui & Co fulfil a quasi-national role by importing everything from oil to corn to sustain the country's resource-poor economy.
Together with Itochu Corp, Sumitomo Corp and Marubeni Corp, the five major trading houses reported record April-December net profits this month, with many upping their full-year forecasts.
Combined, they expect annual net income for the year to end-March, 2018 of 1.88 trillion yen (S$23.1 billion), the most since 2011/12 financial year.
Mitsui this month won a bidding war for Australia's AWE Ltd with a US$470 million offer that will give make it operator and 50 per cent owner of the promising Waitsia gas propsect.
Analysts described it as a low-risk investment, while Mitsui said becoming operator of a gas field for the first time would bolster its credentials to bid on other Australian gas assets.
Mitsui has been expected to step up its spending in energy and metals, where it is the strongest of the top five trading houses, said Nomura Securities' senior analyst Yasuhiro Narita.
Itochu - the least exposed to natural resources of the five - is set to buy a stake in Iraq's West Qurma 1 oilfield from Royal Dutch Shell.
It is also eyeing coal assets to replace declining output from its current operations, Chief Financial Officer Tsuyoshi Hachimura said earlier this month.
Mitsubishi CFO Kazuyuki Masu said this month the company was looking to invest in copper mines - one of its three focused assets along with liquefied natural gas (LNG) and coking coal - to meet expected rising demand for electric cars.
This could include the bolstering its stake in mines in which it already has a share, such as Peru's Quellaveco project, where it has invested with majority shareholder Anglo American , and which is awaiting for a final investment decision.