November 1, 2019 / 8:10 AM / 16 days ago

Kyushu Electric shares slump after LNG resale losses force profit revision

TOKYO, Nov 1 (Reuters) - Shares in Kyushu Electric Power fell the most since April on Friday after the company said it booked losses from the resale of liquefied natural gas (LNG) cargoes that forced it to slash its full-year earnings forecast.

The losses highlight an issue for Japanese utilities, which have committed to large volumes of LNG on contracts linked to oil prices, while spot market prices are much lower due to oversupply from new projects.

Kyushu is a victim of its own success in getting nuclear plants back online after all of Japan’s reactors were shutdown in the wake of the 2011 Fukushima meltdown. Utilities had rushed to sign LNG contracts after the disaster but Kyushu has succeeded in restarting all of its operable plants under post-Fukushima regulations, reducing its need for contracted LNG.

The company that supplies power to Japan’s southwestern island of the same name cut its annual profit forecast on Thursday by 45% from an earlier estimate to 30 billion yen ($280 million) and reduced a planned dividend for the year. It is also facing competition as the market is liberalized.

Despite “efforts to reduce costs, ordinary income has been revised downward, because of a decrease in sales and a loss in reselling surplus LNG as market prices significantly dropped in the domestic electric power business,” Kyushu said in a statement on its half-year earnings on Thursday.

Net income for the first-half of its financial year fell more than 60% to 7.2 billion yen it said.

Kyushu shares closed 4.9% lower on Friday, the biggest daily percentage loss since the end of April.

While spot LNG prices in Asia LNG-AS have risen in recent weeks as utilities in the region stock up for winter demand, they are significantly below the average price Japanese buyers pay when taking into account the supplies coming in under contracts linked to oil prices.

Japan’s average import price for LNG in September was $9.56 per million British thermal units (mmBtu), compared with a high of $5.80/mmBtu on the spot market for that month.

The decline in spot market prices for LNG has pushed Japan’s utilities to be more aggressive in pricing reviews built into their traditional oil-linked contracts.

($1 = 107.9600 yen)

Reporting by Aaron Sheldrick; Editing by Tom Hogue

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