Profit in the Time of Covid: Impact on Japan Corporates

May 20, 2021|Financials

Japan LNG Imports Graph

Japan went into its first lockdown and state of emergency on April 7, 2020[1], almost at the start of Fiscal Year 2020. In the last two weeks, most major Japanese players in the significant energy and commodity space reported their FY2020 results.

The results were affected by commodity price volatility and the accelerated decarbonization narrative, as well as the COVID-19 pandemic, leading several key players in Japan’s energy scene to post record losses and write-downs. And while the broader Nikkei 225 stock index rose 60% during FY2020, many energy-related stocks dropped as investors punished those slow to respond to the energy transition narrative and closer scrutiny over the environmental footprint. 

Below is a selection of interesting points from the financial results.

Trading Companies

Sumitomo Corporation recorded its worst ever performance as it suspended a Nickel project in Madagascar for a year and incurred large associated impairment charges. The IPP power business in Australia and the rising cost of power infrastructure also contributed to the record loss. As a result of the decarbonization trend, the company vowed to exit all shale oil businesses in the U.S. and all coal projects by the end of 2040s. The firm is also closing its crude and fuel oil trading desks in Singapore.

Sumitomo expects the current bullish trend in commodities to continue this fiscal year. Its oil forecast is 10% higher for this fiscal year, copper estimate is 18% higher, and the expectations for coking coal and nickel are also up. 

[1] Japan registered its first Covid-19 case in January 2020, but the virus did not start to spread noticeably until late February to early March.

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