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Japanese conglomerate Mitsubishi Corp plans to shutter its Chinese metal trading business after suspected fraud by one of its copper traders led to a more than US$90 million loss.
The company will stop buying and selling refined metals and mineral resources in the Chinese spot market and will no longer provide related services for local companies, according to people familiar with the situation, who asked not to be named because the matter is private. The change won’t affect Mitsubishi’s imports and exports on behalf of Chinese clients managed from outside the country, they said.
Mitsubishi announced a 13.8 billion yen (S$119.6 million) loss “in its Chinese trading business” in its quarterly earnings in November. It confirmed in December, following a Bloomberg report, that the hit – US$92 million at the prevailing exchange rate – was due to a Shanghai-based trader, whom it had since dismissed.
A Mitsubishi representative confirmed on Tuesday that the company would not conduct any new domestic transactions in China. It will, however, continue to export to and from China through other trading units.
The move, which Mitsubishi estimated could carry a cost of “several hundred million yen”, was the result of “changes in the market environment” and of the copper fraud, the representative said in an emailed comment.
News of the alleged wrongdoing, the latest in a string of fraud cases to hit major commodity trading houses, shocked Mitsubishi and its senior executives, and made one of Japan’s most conservative traders even more reluctant to extend its bet on a cooling China.
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Mitsubishi Corporation RtM China, the company’s trading unit based in Shanghai, started last week to inform clients of its decision to shut down and has begun unwinding existing deals, the people said. The China unit will close after the matters are settled, handing any foreign trade contracts to other offices.
One of the first foreign traders to have an office in China as it opened up, Mitsubishi has traded commodities in the country for about three decades. The Japanese company has been a major supplier of imported copper concentrates to smelters, and has shipped other metals such as aluminium to the world’s largest metal consumer. In China’s physical market, it purchased metals from smelters and traders to supply local fabricators – a business mainly conducted by rogue trader Gong Huayong.
Gong, a Chinese national who worked as a trading manager at Mitsubishi Corporation RtM China, made unauthorised deals with local companies, including some that were related to him, people familiar with the matter said last year. He allowed certain local companies to defer payments for copper concentrate and refined copper, they told Bloomberg – even counterparties who were unapproved by Mitsubishi.
The loss is a compliance and risk management embarrassment for Mitsubishi, but it is a manageable financial blow. One of Japan’s largest trading companies, the company expects to report a full-year profit of 950 billion yen.
It’s not the first time Mitsubishi has taken a radical decision to respond to a crisis. It shut its Singapore-based oil unit in 2019 after a rogue Chinese trader lost more than US$300 million. (The trader said through his lawyer that he was acting on his managers’ orders and that the losses resulted from “premature” settlement of the derivatives positions.) BLOOMBERG
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