Major Japanese trading houses said on Friday they expect higher net profits for the current fiscal year, citing the persistence of the U.S.-Israeli war on Iran and its effect on commodity prices. Their outlooks come even as regional power companies warned that procurement costs could spike and squeeze margins.
Japan, which is particularly exposed to disruptions in energy imports, has intensified diplomatic efforts and announced several forms of public support totaling billions of yen to shield the economy from the shock of the conflict and from disruptions tied to the closure of the Strait of Hormuz. Support measures noted by authorities range from direct subsidies to the possibility of currency intervention.
Marubeni's Chief Executive Masayuki Omoto said the Middle East crisis presents greater upside than downside risk to the company’s earnings because of higher commodity prices. Marubeni is forecasting a net profit of 580 billion yen for the current fiscal year - a level the company characterized as a record. That figure would represent a 6.6% rise versus last fiscal year’s net profit of 544 billion yen, which was itself a record.
Mitsui, which counts Berkshire Hathaway as a large minority shareholder, projected a 10% increase in net profit for the fiscal year ending in March to 920 billion yen. Mitsui attributed the expected improvement to stronger commodity prices and anticipated gains across other parts of its business portfolio.
Sumitomo and Itochu both signalled net profit increases as well, forecasting rises of 5% and 6% respectively for the fiscal year. Berkshire Hathaway is also a shareholder in Sumitomo and Itochu.
In contrast to trading houses, Japan’s regional electric utilities warned that the higher procurement costs associated with tightened global energy markets could undercut profitability. Prior to the outbreak of the Iran war in late February, Japan sourced roughly 11% of its liquefied natural gas imports from the Middle East, with about 6% of its LNG shipments transiting the Strait of Hormuz. Australia remains Japan’s largest supplier of LNG.
Although utilities said their LNG supplies are secure for now, helped by alternative sourcing and healthy stockpiles, many long-term LNG contracts are indexed to oil prices. As a result, several utilities cautioned that procurement costs will likely rise if oil-linked pricing pushes LNG rates higher. LNG is a principal fuel in thermal power generation in Japan.
Six of Japan’s 10 regional electric utilities, including Kansai Electric Power and Kyushu Electric Power, forecast a drop in profit for the current fiscal year. The remaining utilities withheld guidance, citing uncertainties over the future trajectory of fuel costs.
Currency reference: $1 = 157.1800 yen.