Japanese trading house Mitsui may miss the current year’s profit target of $1.1bn for its metals business due to the slump in iron ore, warned a senior executive.
Reuters
Japanese trading house Mitsui & Co may miss the current year’s profit target of $1.1bn for its metals business due to the slump in iron ore, warned a senior executive, who said prices may fall to as low as $80 a tonne before rebounding.
Hiroyuki Kato, Mitsui’s executive in charge of energy and metals, also told Reuters in an interview yesterday that the trading house and its partners have secured buyers for about 70% of output from their liquefied natural gas (LNG) project off the coast of Mozambique.
Spot iron ore prices have slumped 38% this year as growth in supply from low-cost leading miners outstripped the increase in demand from top buyer China.
The big-three iron ore miners – Rio Tinto , BHP Billiton , and Vale, in whose holding company Mitsui has a 15% stake – are betting they can force out smaller competitors by ramping up production.
“There is a risk that the mineral and metal resources unit will miss our forecast,” Kato said. “It depends on how much impact from the slumping iron ore prices can be offset by cost cuts and production expansions.”
Mitsui is forecasting profit of ¥380bn ($3.56bn) for the year through March, of which the mineral and metal resources segment is expected to contribute ¥118bn ($1.11bn). Kato did not say by how much it may miss the
target.
Iron ore for immediate delivery to China dropped to $83.20 a tonne on Tuesday, according to data provider Steel Index.
“Iron ore prices may fall to as low as around $80, but that will put more suppliers in distress and force them to cut production capacities,” Kato said.
“We think that the recent fall in iron ore prices is a temporary phenomenon and prices are likely to come back to around $100 soon ... by the end of this year or the end of this business year,” through March, the Mitsui executive said.
World No 2 iron ore miner Rio Tinto expects other miners worldwide to cut 125mn tonnes of iron ore capacity in 2014, roughly equal to the amount of new supply expected to come on stream from Australia and Brazil.
Mitsui had an annual iron ore output of 51mn tonnes in the last business year to March 31 through its equity holdings in mines.
Kato said Mitsui’s iron ore investments would still be profitable even if prices fall 20%-30% further and it is sticking to a plan to boost output to 69mn tonnes by 2020.
Japanese trading companies have wide-ranging business portfolios often seen as similar to investment banks.
Mitsui, Japan’s second-biggest trading house after Mitsubishi Corp, has spent over $18.6bn on acquisitions since the start of the current decade, with 43% of that in the energy sector, Thomson Reuters data showed.
It has a 20% stake in US-based Anadarko Petroleum Corp’s gas project off the coast of Mozambique, which is working to become the first East African nation to export LNG, aiming to ship 10mn tonnes per annum of the superchilled gas. The first shipments are expected in 2018 or 2019, Kato said.
Anadarko and Mitsui are aiming to secure long-term buyers for between 85% and 90% of the offtake of the huge gas field, Kato said.
For Cameron LNG project in the US state of Louisiana, which is owned 50.2% by US-based Sempra and 16.6% by Mitsui, the production of its stake, or 4mn tonnes per annum, is “almost sold out”, Kato said.
Mitsui will focus on three major projects, Mozambique, Cameron and Browse, in which Australia’s Woodside Petroleum holds the biggest stake and Mitsui owns a minority stake, Kato said.
The Japanese trading house is also keeping an eye out for other opportunities.
US oil and gas company Apache Corp said in July it plans to sell interests in Australia’s Wheatstone and Canada’s Kitimat LNG projects.
“We can’t say we are not interested. But we are focusing on the three main projects for now,” Kato said, when asked whether Mitsui is interested in the Wheatstone project.