Metals & Coal Division – Main Businesses & Vision –

Business Overview

In addition to trading and acquisition of interests in coal, steel and base metals, invests in rare metals such as niobium and steel-related businesses such as alumina refining.

【Main Products】

Coal (thermal coal, PCI coal, coking coal)
Iron ore, iron ore pellets, hot briquetted iron, steel products
Rare metals (molybdenum, nickel, niobium, vanadium, tungsten, etc.)
Industrial minerals (fluorite, zircon, etc.), auxiliary materials for steel (refractory products, etc.), carbon materials and carbon products
Non-ferrous metals (alumina, copper concentrates, copper, etc.), precious metals (gold, silver, platinum, palladium, etc.)

Coal

Minerva Mine in Australia
Managing overseas mine (Australia’s Minerva mine) as the sole Japanese trading company to facilitate mine operations. Participating in the management of multiple coal mines in Australia as well as Indonesia.
Expanding offshore coal trading and import sales of coal and coke to Japan.
[Major Business Activities] Coal Business

Ferrous Metals

CBMM Araxá Mine, Brazil
Developing trade and investment in upstream interests for a variety of ferrous materials and auxiliary feedstock.
Supporting domestic/international sales of steel products from Metal One Corporation, a joint venture owned 40% by Sojitz.
[Major Business Activities] Iron Ore Business
[Major Business Activities] Steel Products Business
[Major Business Activities] Industrial Minerals Business
[Major Business Activities] Ferroalloy Business

Base Metals

Worsley Alumina Refinery in Australia
Participating in alumina refinery project in Australia
Promoting the acquisition and development of upstream copper interests overseas
Expanding the logistics business centered around the Asia region
[Major Business Activities] Non-ferrous and Precious Metals Businesses

Business Overview and Vision

Meeting obligations as a supplier of energy and mineral resources through trading and high-quality interests

Energy and mineral resources are indispensable for driving development and growth in countries around the world. Demand is especially growing in emerging countries due to industrial development. We believe it is the duty and mission of the Metals & Coal Division to supply energy and mineral resources to Japan, which lacks resources, and to emerging countries, whose economies are growing rapidly.

In the coal business, we have invested in interests in Australia and Indonesia, and in trading we are the leading importer of Russian coal to Japan in terms of volume. As such, we have a strong network of purchasers and suppliers that has established our solid presence in the industry. We also invest in interests for rare metals (niobium and nickel) and base metals, and our equitymethod associate Metal One Corporation is an integrated steel trading company. Moreover, with a large share of imports to Japan of products such as high-grade iron ore, ferronickel, fluorite, vermiculite and other metals, we supply energy and mineral resources that are distinct and unique to Sojitz.

Operating Environment

Reconsidering the value of a general trading company in a sluggish market

Against the backdrop of recent market volatility, resource-related cost prices slumped across the board in the year ended March 31, 2016, substantially impacting the industry as a whole. Sojitz incurred impairment losses on its coal interests and iron ore business. Gains on revaluation of coal business assets due to a change in holding purpose resulted in higher profit year on year, but it is unlikely that markets will improve for at least the next one to two years. We therefore forecast a profit decline for the year ending March 31, 2017.

General trading companies’ former business model for the energy and mineral resources sector was to provide stable supply through trading. However, as the number of market participants gradually increased and users started to directly procure energy and mineral resources themselves, trading alone was no longer seen as a valuable function, which rendered the former business model unfeasible. In more recent times, general trading companies accelerated investment in upstream interests to secure supply sources, no longer relying solely on trading. They found new value in building resource value chains.

Today, slowing growth in China has put a damper on demand in emerging countries. Consequently, we are facing the need to change once more. General trading companies continuously create new business models. We are in a transition phase. It is time for us to turn the challenging circumstances of the market into opportunities and create new functions and value.

A Value Creation Strategy That Leverages Sojitz’s Strengths

Increasing revenues based on a strong coal business

Our duty to supply energy and mineral resources remains unchanged. While fulfilling this mission, we will also strive to ensure a stable earnings foundation and evolve the earnings structure in order to once again create value. In the coal business, in which we have been involved for over 60 years, our priority is to boost profitability by making the most of our unique strengths. At the Minerva Coal Mine in Australia, Sojitz is the only general trading company engaged in coal mine management, including operation. We have accumulated extensive business expertise as a result of being involved in all aspects up to operations, and have exceptionally talented engineers. For our coal mine interests in Indonesia, the exchange of such expertise and personnel generated synergies that have contributed substantially to cost reductions and technology transfer efforts particularly during the year ended March 31, 2016. Furthermore, our on-site involvement in coal mine management gives us greater ability to gather and analyze information, which helps to accelerate and increase the sophistication of management decision-making. This ability to respond quickly makes it possible for us to minimize losses even under difficult business conditions.

Establishing a stable earnings foundation that is resilient to market fluctuations

Minerva Coal Mine in Australia

Our focus in the year ending March 31, 2017 is to transform our value chains. As noted earlier, we do not have strong expectations for an upturn in markets and thus expect uncertainty to continue. We see an urgent need to establish an earnings foundation that is resilient to market fluctuations.

In the coal and ferroalloys businesses, we already own upstream interests, and we have built an overall value chain through trading that extends to end-user supply. However, by making more aggressive use of Sojitz’s financing and logistics capabilities, further advancement is possible. Specifically, we aim to provide new functions by directly handling distribution and move further downstream into areas such as storage and processing to develop higher value added businesses. These businesses are not only less susceptible to earnings volatility caused by market fluctuations, but also clearly represent a departure from our conventional value chain.

In addition, Sojitz is strong in handling industrial minerals (such as fluorite and zircon), auxiliary materials for steel (such as refractory products), carbon materials and carbon products, and is the top trading company for fluorite and vermiculite. We have worked to strengthen these capabilities in basic industries, including iron and steel, non-ferrous metals, automobiles and chemicals, as well as in highly specialized sectors such as new energy, and environment- and recycling-related industries. Our greatest value for Sojitz, we believe, comes from our broad reach across industries and strong customer relationships arising from our close proximity to users. We will work to expand in commodities and create new business models by further deepening our ties with customers and being attentive to their needs and by addressing societal demands and change.

Future Initiatives

Reestablishing our position as an earnings driver for the Sojitz Group

Several years ago, resources-related businesses, including those in the Metals & Coal Division, drove Sojitz’s earnings. We were the face of Sojitz. Even now, our employees strongly identify with the sentiment and mindset of that time. We will refrain from pointing to current market conditions as an excuse and dedicate ourselves to devising ways to increase earnings. Fortunately, we have been less impacted than our industry peers, and still have the strength to push forward with reforms. Our intention is to create a strong business portfolio in anticipation of the market three to five years down the road.

Moreover, we do not assume that we can offer value on our own strengths alone. We have grown alongside our customers and business partners and have created value with their support.

I hear that given the very harsh circumstances recently, customers are seeking our advice, and that we are receiving renewed praise for our efforts. I am confident that this is because we have built relationships of trust with our customers as a result of our sincerity and honesty. It is our hope that if customers want to consider something novel, they will come to Sojitz first. We intend to satisfy their expectations with new functions and value, and reestablish our representative position as an earnings driver for the Sojitz Group while fulfilling our obligations as a supplier of energy and mineral resources.

Opportunities

▶  Resource needs arising from medium-to-long-term economic growth in emerging countries
▶  New needs in environment-related (recycling) and other businesses

Risks

▶  Risk of market price fluctuations and impairment losses
▶  Changes in market structure due to advances in technology and tightening of environmental regulations; changes in customer needs
▶  Deterioration in financial conditions of customers, suppliers or investment partners

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