Higher Yen and Commodity Prices See Japan’s Soga Sosha Look For EV and Energy Plays

The rise in the yen has added to Japan’s Soga Sosha financial strength. The trading houses search for suitable asset plays in the commodity sector, wary of debt financed plays and high prices they are looking for cash spends.

The rise in the yen has added to Japan’s Soga Sosha financial strength. The trading houses search for suitable asset plays in the commodity sector, wary of debt financed plays and high prices they are looking for cash spends.


With the Nikkei Dow at elevated levels Sosha have seen both profits and future outlooks at the highest since the GFC and are mindful of previous pitfalls.

The trading housees are significant producers and traders of prime commodities such as copper, iron ore, crude oil, coal, aluminium, soyabeans and liquefied natural gas.The commodities they are keen to add invests are coking coal, oil and natural gas presently. Reuters estimates that the trading houses have a combined US$50 billion war chest.  The scene was set when Mitsui won a bidding war for Australia’s AWE Ltd  in ealy February with a $470 million offer to operate and own 50 percent owner of the Waitsia gas project.

The operating role is new for Sosha like Mitsui, it is appealing for a number of reasons, greater control, direct access to cash flow and if successful gives them new found credibility for futures projects. There are eyes are on future energy projects in Australia with ready demand in Japan on hand.

Mitsui is seen as the strongest of the top five Japanese trading houses but is the least exposed to natural resources of the  up has been aggressively trying to change that exposure. The are likely to close the purchase of a  stake in Iraq’s West Qurma 1 oilfield from Royal Dutch Shell.

Coal is also on the agenda as Australia announced that in 2017 they exported the most coal by value aver. Mitsui needs to replace declining output from its current operations, Chief Financial Officer Tsuyoshi Hachimura said earlier this month.

Top Five Soga Shosa

  1. Mitsui & Co
  2. Mitsubishi Corp
  3. Itochu Corp,
  4. Sumitomo Corp
  5. Marubeni Corp

Record Profits

All five of the major trading houses reported record April-December net profits this month, with most raising their full-year guidance. Reuters said that combined, they expect annual net income for the year to end-March, 2018 of 1.88 trillion yen ($17.4 billion), the most since 2011/12 financial year.

Keep in mind however in March 2016 the five  Sosha  combined wrote-off about 1 trillion yen after the commodities downturn of 2014-2015. Caution in the wind is paramount.

Japanese Trading House Losses

Sociedad Química y Minera de Chile $SQM finalised a deal to expand production at one of the biggest sources of lithium in a drawn out deal with with the Chilean economic development agency (CORFO). This will mostly likely see a rush for investment from the trading houses to get involved in electic vehicles from the beginning in the supply chain.

Mitsubishi is keen to invest in LNG, coking coal and the rare earths and commodities used in electric car production their CFO said at their earnings call early this month. In it anticpated that mines like Peru’s Quellaveco project, where Mitsubishi has invested with majority shareholder Anglo American are likely investment targets.  

Competitors would be the Australian mining giants BHP, Rio Tinto and Glencore all only just returning to high profitability after massive writeoffs. Notably their dividends were all increased rather than lavishly buying assets. The shareholder is in mind at this point after years of pain and angst.

Understanding Japanese Strategy, Birth of Soga Sosha 

Understanding Soga Soshu strategy it is helpful understanding where they came from. Sogo shosha came about after World War II prior to that trading entities like Mitsubishi Shoji and Mitsui Bussan were known as boeki shosha, meaning foreign trading companies. The sogo shosha system can be traced back to the political rebellion of 1868, in which the Tokugawa government was replaced by a restoration of the Meiji emperor.

This new government initiated the ambitious industrial modernization program where large state enterprises were established, modelling the British East India Company and Jardine Matheson and their roles in China and Hong Kong. The government looked to existing family run companies with strong management skills such as Sumitomo, Mitsui, Mitsubishi, Ono, and Shimada focused on import and export trading.

Very quickly Mitsui became Japan’s leading trading firm, Mitsubishi dominated the shipping industry, and Sumitomo made mining it’s own. Ono and Shimada dissolved and were replaced by Yasuda, which became Japan’s largest bank. Political and financial power was entwined from the start, which shouldn’t be forgotten when trying to analyse the Bank of Japan motives.

Mitsui in particular was helped having sponsored the Meiji leadership back in 1968. Mitsui got the whole cake, the emporer’s privilege of  banking, mining, and trading with a semiofficial status. Here we are in 2018 and advancing Japan’s industrialization is firmly on the agenda.

From a sunburnt country

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