Canon, Kao, Hitachi May Say Profit Growth Slowed by High Commodities Costs
March 31 (Bloomberg) -- Japanese companies such as Canon Inc., the world's biggest maker of copiers, and Hitachi Chemical Co., a maker of materials used in computer chips, may report slower profit growth because of higher commodities costs.
Pretax profits of 1,058 companies on the Tokyo Stock Exchange will probably increase 4.7 percent in the year starting April 1, down from a projected gain of 20.8 percent in the year- earlier period, according to Shinko Research Institute, a unit of Tokyo-based Shinko Securities.
The Bank of Japan's overseas commodities index, a weighted average of 16 goods including oil, copper and aluminum, rose 20.3 percent in February from a year earlier. Higher prices of energy and commodities are raising costs and squeezing profits at Tokyo- based Canon, Hitachi Chemical and other manufacturers.
``The impact of rising material costs on profits is enormous,'' Keiichi Takeda, executive officer of Hitachi Chemical, said in an interview on March 25. The Tokyo-based company expects oil and other raw material costs to cut profit by about a fifth to 24.5 billion yen in the year ending March 31.
Companies including Toyota Motor Corp., the nation's largest automaker, say they can't pass higher costs on to domestic customers because consumer prices in Japan are approaching their seventh year of declines.
``It would be difficult to raise the retail prices of our vehicles just because our costs are getting higher due to higher steel costs,'' Fujio Cho, president of Toyota City-based Toyota Motor, told reporters on March 22.
The Bank of Japan's Tankan report, due tomorrow, may show that confidence among large manufacturers was unchanged in March from December and below the 13-year high marked in September, economists said.
Blow to Investment
The profit squeeze is leaving companies less money to invest in machinery and equipment, sapping a recovery from Japan's fourth recession since 1991, say economists including Hiroshi Watanabe. Business investment accounted for more than a third of Japan's 2.7 percent economic expansion last year.
``If raw material prices stay high, they will deal a blow to business investment,'' said Watanabe, an economist at Daiwa Research Institute, a unit of Japan's second-largest brokerage by sales.
Oil Prices
Dubai crude oil at $45 a barrel and a 20 percent increase in prices of steel, copper, aluminum and 24 other materials in the year starting April 1 would cut the pace of economic growth to 0.5 percent from 0.6 percent, estimates Watanabe. Capital spending would shrink 0.1 percent instead of growing 0.4 percent, he says.
Dubai crude, a benchmark for Asian refiners, rose to a record $47.79 on March 17 and has gained 55 percent in a year. Copper traded in London rose to a record on March 16 and has increased 9 percent in a year.
Higher costs have hurt business confidence, according to a March 24 government survey. An index of sentiment among manufacturers with at least 1 billion yen in capital fell to minus 7.6 points this quarter from minus 1.3 points, the survey showed. A negative number means pessimists outnumber optimists. Manufacturers said they will limit increases in business investment to 0.2 percent in the year starting April 1, compared with a 17.7 percent gain this year.
Recovery
Japan slipped into recession in the second quarter of last year as consumer spending sagged and exports slowed, after growing at a 6 percent annual pace in the first three months. The economy recovered in the fourth quarter, expanding at a 0.5 percent pace, as manufacturers replenished stockpiles.
Producer prices rose 1.3 percent in February from a year earlier, the 12th consecutive monthly gain. The pace will probably accelerate, ``given recent crude oil and commodity price moves,'' Bank of Japan Governor Fukui said on March 16.
Tokyo-based Kao Corp., Japan's largest maker of household goods, said higher costs of oil contributed to a 13 percent drop in profit in the quarter ended Dec. 31.
``Prices of toiletries continue to fall because Japan's personal incomes aren't rising and competition is intensifying,'' Katsuya Fujii, vice president in charge of the investor relations, accounting and finance divisions, said in an interview on March 24.
Cost Cuts
To cut costs, Kao plans to reduce the amount of plastic in its bottles, print cheaper labels and reduce delivery and storage costs by shipping some products directly to consumers.
Companies such as Canon are also being hurt by declining global prices of electronics including digital cameras. Canon said in January that higher costs will contribute to a slowdown in profit growth to 4.6 percent in 2005 from 25 percent last year.
Osaka-based Matsushita Electric Industrial Co., the world's largest maker of consumer electronics, said more costly materials and energy cut its profit by 12 billion yen, or a third of the total, in the quarter ended Dec. 31. Price cuts shaved profits by 88.7 billion yen.
``If we increase prices, we risk losing some of our customers,'' Tetsuya Kawakami, managing director of Matsushita, which produces under the Panasonic and National brands, said in an interview on Jan. 26.
Steelmakers including Tokyo-based Nippon Steel Corp. have been able to pass on higher costs of iron ore because of strong demand from China.
``There will be no change in the trend of strong demand for steel'' Nobuyoshi Fujiwara, chief financial officer of Nippon Steel, which increased its profit forecast for this business year by 5 percent to 200 billion yen, told reporters on March 3. |
