Five Japan trading firms attract funds from investment guru Buffett

SINGAPORE (ICIS)–Five Japanese trading firms – Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo – have attracted funds from US billionaire and investment guru Warren Buffett, while global trade is being pummelled by the coronavirus pandemic.

Petrochemicals are among the commodities being traded by the five Japanese firms.

Shares representing “slightly more than 5%” in each of the Tokyo-listed firms have been acquired by Buffett’s investment company Berkshire Hathaway via its wholly-owned subsidiary National Indemnity Company, over a period of about 12 months.

The US investment firm intends to hold the stakes “for the long term” and may increase the holdings up to a maximum of 9.9% “in any of the five investments” depending on the price, it said in a statement dated 31 August.

Four of the five trading firms remained profitable in the June quarter, although their financial results were lower on a year-on-year basis. Sumitomo, on the other hand, swung into a net loss for the period.

Q1 results of the five Japanese trading firms (in billion yen)

Itochu Corp	April-June ’20	April-June ’19	Yr-on-yr % change
Revenues	2,388	2,727	-12.4
Trading income	72.1	102.4	-29.6
Net profit	104.8	147.3	-28.9

Marubeni	April-June ’20	April-June ’19	Yr-on-yr % change
Revenues	1,588	1,908	-16.8
Operating profit	51.9	55.4	-6.2
Net profit	58.1	65.2	-10.8

Mitsubishi Corp	April-June ’20	April-June ’19	Yr-on-yr % change
Revenues	2,667	3,941	-32.3
Pre-tax profit	56.0	222.6	-74.9
Net profit	36.7	161.2	-77.3

Mitsui & Co	April-June ’20	April-June ’19	Yr-on-yr % change
Revenues	1,522	1,633	-6.8
Pre-tax profit	102.0	172.4	-40.8
Net profit	62.6	125.0	-50.0

Sumitomo Corp	April-June ’20	April-June ’19	Yr-on-yr % change
Revenues	1,036	1,313	-21.1
Pre-tax profit	-30.2	113.2	–
Net profit	-41.1	79.7	–

“The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships,” company CEO Buffett said.

Berkshire Hathaway is participating “in the future of Japan” via the investments, he said.

Earnings of the five trading firms in April-June were weighed by a demand collapse as global trade was hit hard amid lockdowns imposed to stem the tide of the deadly coronavirus pandemic, with most major economies, including Japan’s, plunging into a recession.

STRONG TRADE REBOUND IN 2021 UNLIKELY
The World Trade Organization’s (WTO) goods trade barometer reading released on 19 August stood at 84.5 points, lower by 15.5 points than the base line value of 100 and down by 18.6 points from the same period last year.

The reading is the lowest on record since 2007, and “on par with the nadir of the 2008-09 financial crisis,” WTO said.

World trade for the whole of 2020 may fare better than the 13% decline initially projected in April, but WTO economists warned that “a strong, V-shaped trade rebound” next year “may prove overly optimistic”.

As recorded by the Automatic Identification System (AIS) developed by the IMO of the United Nations. At the beginning of August, port calls were still down around 7% year on year, a modest improvement over the 11% decline registered in May.

Most economies have been gradually lifting lockdown measures to prevent a resurgence of infections while possible vaccines are still in various testing stages.

“As uncertainty remains elevated, in terms of economic and trade policy as well as how the medical crisis will evolve, an L-shaped recovery is a real prospect. This would leave global trade well below its pre-pandemic trajectory,” the WTO stated.

The coronavirus outbreak, which started in China in late 2019, has so far infected more than 25m globally, with the US, Brazil and India as the worst-hit countries based on the latest tally by the World Health Organisation (WHO).

Focus article by Pearl Bantillo

($1 = Y106.3)

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