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Japanese conglomerate Mitsubishi Corp. plans to market its metals in China after alleged fraud through one of its copper investors caused a loss of more than $90 million.
The company will avoid buying and promoting subtle metals and mineral resources in China’s spot market and will no longer supply similar facilities to local companies, according to other people familiar with the matter, who asked to remain anonymous because the matter is private. The replacement will not have an effect on Mitsubishi’s imports and exports on behalf of Chinese consumers controlled from outside the country, they said.
Mitsubishi reported a loss of 13. 8 billion yen “in its business operations in China” in its November quarterly results. In December he demonstrated, following a Bloomberg report, that the damage ($92 million at current exchange rates) was due to a Shanghai-based trader, whom he had since fired.
A Mitsubishi representative said Tuesday that the company would conduct new internal transactions in China. However, it will continue to export to and from China through other business 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.
Mitsubishi Corporation RtM China Ltd. , the company’s Shanghai-based business unit, last week began informing consumers of its resolution to close its doors and began terminating existing agreements, the sources said. The Chinese unit will close its doors once the issues are resolved, handing over foreign industry 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 aluminum 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 sales manager at Mitsubishi Corporation RtM China, entered into unauthorized deals with local corporations, adding that some were related to him, other people familiar with the matter said last year. It allowed some local corporations to defer copper and fine copper bills, they told Bloomberg, even to counterparties not approved through Mitsubishi.
The loss is an embarrassment for Mitsubishi’s compliance and control, but it’s a manageable monetary hit. The company, one of Japan’s largest trading companies, plans to report an annual 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 $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.)
(By Alfred Cang and Koh Yoshida)