November 2, 2018 / 10:58 AM / 11 days ago

UPDATE 2-U.S.-China trade spat takes bite out of Japan's trading houses

* Itochu expects no quick recovery in CITIC share prices

* Marubeni’s U.S. grain business hurt by U.S.-China trade friction

* Gavilon suspends financial trading

* Mitsubishi ups FY earnings f’cast, aims $8 bln profit in 2021-22 (New throughout, adds background on trade dispute, comments from Marubeni’s Gavilon unit suspending financial trading in agriculture)

By Yuka Obayashi and Tom Polansek

TOKYO/CHICAGO, Nov 2 (Reuters) - Japan’s Itochu Corp on Friday booked a $1.3 billion loss on its investment in China’s CITIC Ltd, blaming trade tensions between China and the United States for the writedown on its biggest corporate transaction.

Marubeni Corp separately said the trade war hurt its U.S. grain unit, Gavilon, which has halted financial trading in agriculture.

The Japanese trading houses joined manufacturers of heavy equipment, telecommunications firms and other companies that have sounded warnings about the impact of U.S.-China trade friction as they release their latest results.

U.S. and China have imposed tariffs on hundreds of billions of dollars of each other’s goods, and U.S. President Donald Trump has threatened to extend the tariffs to the remainder of China’s $500 billion-plus exports to the United States if the disputes cannot be resolved.

Itochu’s Chief Financial Officer Tsuyoshi Hachimura said the impact of the trade dispute on Chinese economy is likely to be worse next year.

The company, along with Thailand’s Charoen Pokphand Group, invested $10 billion in CITIC in 2015, taking 20 percent of the Hong Kong-listed unit of China’s oldest and biggest conglomerate.

Itochu took an impairment loss of 143.3 billon yen ($1.3 billion) on the stake because it judged that CITIC’s share price would not recover any time soon, Hachimura said.

Its net profit for the April-September period rose 6.4 percent to 258 billion yen, as an appraisal gain of 141.2 billion yen from its stake in FamilyMart UNY Holding helped offset the CITIC loss. Itochu maintained its forecast for 500 billion yen profit in the year through March 31, 2018 which was lifted last month.

Marubeni reported a 45 percent jump in profit for the six months through September. However, its Gavilon unit suffered from U.S. soy prices that have fallen due to a decline in shipments to China, according to the company.

Beijing imposed 25 percent import duties on imports of U.S. soy in July in retaliation for moves by Washington in the trade row.

“Our grain business has been hit by the U.S.-China trade friction,” Marubeni’s CFO Nobuhiro Yabe said.

Gavilon has stopped financial trading on its own account since September, Yabe said.

The company made the move “in accordance with internal policy limits and lack of market opportunities,” Gavilon spokesman Pat Burke said in a statement Friday.

Gavilon continues to trade and ship physical commodities around the world “with strong financial support” from Marubeni, Burke said. The halt to financial trading will not result in job losses, he added.

“Gavilon’s primary source of revenue is physical commodity trading and merchandising, which is very active and resulted in volumes in excess of expectations and over prior year during the first half of our fiscal year,” Burke said.

Marubeni maintained its forecast for 230 billion yen annual profit, helped by its pulp and paper and power generation business.

Sumitomo Corp, which on Thursday reported a 16 percent increase in profit for the April-September period, highlighted a “lack of transparency in the outlook due to U.S.-China trade issues.”

Mitsubishi Corp on Friday raised its annual profit guidance to a record level thanks to higher coking coal output and stronger commodity prices such as oil and coal.

It also announced a new business plan which aims to boost profit to 900 billion yen ($7.98 billion) in the year through March 31, 2022, from a forecast of 640 billion yen this year. ($1 = 112.7500 yen) (Reporting by Yuka Obayashi in Tokyo and Tom Polansek in Chicago; additional reporting by Michael Hirtzer in Chicago; writing by Aaron Sheldrick; editing by Christopher Cushing, David Evans, P.J. Huffstutter and David Gregorio)

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