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Japan's Trading Houses:
Feeling Bullish

Issue 110, January 2015

In Toyota City, a cluster of factories on Japan’s south-east coast, the world’s largest carmaker has devised an elaborate system of weights and counterweights that carry parts across a factory floor, using gravity instead of electricity. Another factory, owned by Panasonic, produces 2m televisions per month, manned by 25 people. 

Japan is a rampant exporter, producing over 9m cars in 2014, nearly double the output of Germany, giving it higher per capita exports than the US, EU or China.

But with almost no mining assets, Japan is uniquely dependent on mining imports: coal shipments have risen in 15 of the last 20 years, whilst the country imports more copper, coal and iron ore per head than any other leading economy.

Japan’s leading trading houses, Mitsubishi, Mitsui and Itochu, have countered the imbalance by acting as a money supplier overseas, buying minority stakes in assets including Escondida in Chile, the world’s largest copper mine, operated by BHP Billiton.

Combined, their attributable production now accounts for a third of all Japanese coal demand and a whopping 56 per cent of iron ore imports, nudging the country towards a type of self-sufficiency. Relative to imports however, gaps remain, especially in copper, where Itochu currently has no attributable production.

Backed by ultra-low borrowing rates, Japan’s trading houses are positioned for a major move on mining assets this year: Mitsui ploughed $763m into Vale’s coal operations in Mozambique last month, whilst Mitsubishi plans to double its attributable production within 5 years. Itochu has meanwhile said that it is “veering in the direction of becoming a mining company.”

The seaborne iron ore market is currently swamped by surplus supply from Brazil and Australia, whilst the coal market is being bombarded by Glencore and BHP Billiton, but viewed from a Japanese factory floor, commodity price weakness can only be seen as a short-term opportunity, versus Japan’s continuous need. 

“We’re veering in the direction of becoming a mining company.”

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