Sumitomo Corp withdrew its full-year forecasts after booking a ￥77 billion (US$651 million) charge on its Ambatovy nickel project in Madagascar, following a collapse in the price of the metal.
The Tokyo-based trading house, one of Japan’s big five, also warned of further impairments on other projects as it assesses the effects of slumping raw materials prices, it said in a statement yesterday.
Sumitomo had expected net income of ￥230 billion in the financial year to March and said it will issue new earnings guidance at its third-quarter earnings on Feb. 5.
“Sumitomo is in the process of reviewing the likely effect on consolidated earnings forecasts, but since it is difficult to determine reasonable forecasts at the present time,” the company has revised its forecasts to “undetermined,” the statement said.
The company said it would maintain its dividend forecast of ￥25 per share.
The price of nickel, used to make stainless steel, plunged to a 12-year low last year, another casualty of China’s slowest growth in a quarter century. While that slump has continued this month, some analysts are betting that prices could recover this year as consumers draw down inventories and mine output shrinks in the face of mounting losses.
Sumitomo said in October that tough conditions in commodity markets would continue in the second half and could force further write downs on some projects.
The Bloomberg Commodity Index, a measure of returns from 22 raw materials, fell to its lowest level since 1991 on Tuesday.
“The impairment loss was less than what the market expected,” Daiwa Securities Co analyst Jiro Iokibe said by telephone. “The market expected a much bigger number based on the current nickel prices. Risk remains for next year.”
Goldman Sachs Group Inc said it expected Sumitomo to book ￥129.6 billion in write downs related to Ambatovy, according to a report published last month.
The bank expects four of Japan’s trading companies to post a total of ￥903.6 billion in impairment losses due to the decline in commodity prices, the report said.
Sumitomo reported a ￥73.2 billion loss last financial year, its worst result since 1997, on asset write downs, including US oil and Brazilian iron ore projects. In the wake of the loss, it embarked on a three-year plan that included boosting investment and paying greater attention to risk management.
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