Sumitomo warns pandemic, oil price fall to hit profit

San Cristobal Mine is ranked among the world’s biggest producers of zinc, lead and silver. (Credit: Sumitomo)

Sumitomo warned on Wednesday that it may miss its net profit estimate by around 100 billion yen ($919 million) due to the coronavirus crisis and falling oil prices.

The Japanese trading company, which forecast in February a net profit of 300 billion yen for the financial year ended March 31, said will maintain its annual dividend forecast of 80 yen per share despite the downward revision.

Half of the 100 billon yen reduction in the profit estimate is the result of a one-off loss from Sumitomo’s US steel pipe business

Half of the 100 billon yen reduction in the profit estimate is the result of a one-off loss from Sumitomo’s U.S. steel pipe business, which has been hit by slumping oil prices and falling rig counts, a spokesman said.

The rest will is due to a weaker performance in Sumitomo’s transportation and construction machinery segment, as well as its resource and chemical segment which includes metals mining operations, he added.

Sumitomo said in March that it would temporarily suspend operation at its San Cristobal silver-zinc-lead mine in Bolivia and its Ambatovy nickel mine in Madagascar to prevent the spread of the coronavirus.

Sumitomo plans to announce its earnings on May 8.

The rapid spread of the coronavirus which has infected more than 1.38 million people across the world has choked off international commodity demand, weighing on earnings of Japanese trading houses.

Sumitomo’s forecast follows a sharp downgrade by rival Marubeni Corp and a warning of an impairment loss by Mitsui & Co last month.

Global benchmark oil prices have more than halved since the start of the year as the pandemic interrupted business activity, while a crude glut swelled after the collapse of an output deal between the Organization of Petroleum Exporting Countries and Russia (OPEC+).

Faced with tumbling oil prices and a coronavirus-led slump in fuel demand, U.S. energy companies reduced the number of active oil rigs for a third week in a row in their biggest weekly cut in five years, energy services firm Baker Hughes said in a report last week.

($1 = 108.7800 yen)

(By Yuka Obayashi; Editing by Alexander Smith)

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