Commodity rout cuts 970b yen from Japan's trading houses

Tokyo

Japan's biggest trading companies, stalwarts of the nation's economy, expect to book combined writedowns of at least 970 billion yen (S$11.8 billion) as ill-timed investments in commodities ranging from shale gas to copper mines erode profitability. The writedowns for the year ending March underscore the predicament Japan's sogo shosha, or general trading houses, find themselves in after investing heavily in metals and energy at the height of the commodities boom, only to see prices tumble.

The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has dropped about 40 per cent the last two years, and earlier this year touched the lowest level since 1991. Mitsubishi Corp and Mitsui & Co expect their first net loss since they were founded in their current form more than 60 years ago. "These writedowns are significant," said Tom O'Sullivan, founder of Mathyos, a Tokyo-based energy consultant. "They will review strategy and need to further diversify as margins in the intermediary businesses, which has been their traditional strength, are compressing."…