Mitsubishi Cuts Profit Outlook on Oil Prices, Economy

By Shigeru Sato and Ichiro Suzuki

Oct. 31 (Bloomberg) -- Mitsubishi Corp., Japan's largest trading house, cut its full-year profit outlook as global financial turmoil crimped demand for oil and metals, sending prices lower. The company's shares dropped.

The company may post net income of 520 billion yen ($5.3 billion) in the year ending March compared with its July 31 projection of 580 billion yen, it said in a statement to the Tokyo stock exchange today. Mitsubishi restated net profit for a year ago at 471 billion yen. Revenue forecast is unchanged from the estimated 25 trillion yen.

The worst financial crisis since the Great Depression may diminish demand in emerging markets like China and India for oil and metals, which generate more than half of Mitsubishi's profit. Market turmoil, which prompted oil prices to tumble to almost half their value in the past three months, may weigh on the trading company's earnings for the next two years.

``For now, Mitsubishi is reaping solid profit growth from investments that they have made over the past decade such as coking coal projects in Australia,'' Hiroshi Sakurai, an analyst at Mizuho Investors Securities Co. in Tokyo, said before the announcement. ``But, their bottom-line for the next few years hinges on how badly this crisis is hurting demand for iron ore, coal, oil and other materials.''

The shares dropped 4 percent to 1,739 yen in Tokyo trading at 1:33 p.m. after rising as much as 7 percent before the announcement.

For the six months ended Sept. 30, net income increased to 289.2 billion yen from 247.1 billion yen. Revenue rose 19.2 percent to 13.2 trillion yen.

Coal Prices

BHP Billiton Mitsubishi Alliance, the trading house's Australian joint venture, this year tripled the coking-coal price it charges Nippon Steel Corp., the world's second-largest maker of the alloy, contributing to a 17 percent increase in interim profit.

Goldman Sachs last week cut its rating on Mitsubishi's stock to ``Neutral'' from ``Buy,'' citing the bank's projection that prices for iron ore and coal will drop in the year starting April.

Kenichiro Yoshida and Kazuhisa Mori, analysts at Goldman Sachs, said in their Oct. 20 note that Mitsubishi and rival Mitsui & Co. may see a substantial decline in profit in the next business year because the trading houses are at risk from price fluctuations of crude, coal and copper.

The once-in-a-hundred-year crisis may also offer trading houses a priceless opportunity to buy up overseas natural- resources assets while they're cheap, said Yasuhiro Narita, an analyst specializing in trading companies at Nomura Securities Co. in Tokyo, in a note dated Oct. 28.

``Japanese trading houses raise funds mainly from domestic banks that are comparatively healthy compared with overseas lenders faced with more severe circumstances,'' Narita said in the note. ``This provides an advantage to Mitsubishi and others in a global race for the acquisition of oil, iron ore and coal projects.''

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.