Risk of Fluctuations in Nonferrous-Metal and Foreign-Exchange Markets

「Although the impact of increased volatility in the copper market, particularly price fluctuations, will need to be carefully assessed in the fourth quarter, we expect performance to remain solid, supported by continued firm demand.」

「Foreign exchange gain - 90,346 Foreign exchange loss 63,425 -」

「Meanwhile, non-operating expenses totaled ¥451 million, up 3.0% year on year, due mainly to a foreign exchange loss of ¥220 million, interest expense of ¥182 million and an equity-method investment loss of ¥24 million.」

「On an ordinary income and loss basis, the Company recorded an ordinary loss of ¥227 million, compared with ordinary income of ¥139 million in the same period of the previous year, because U.S.-dollar-denominated income generated from increased overseas sales was invested in foreign-currency assets and a foreign exchange loss of ¥63 million arose in connection with the $7.4 million acquisition funding for California Metal-X and other items.」

「For the full fiscal year, the average LME copper price during the period was up 4.9% year on year, while the dollar appreciated 8.8% against the yen. As a result, the average yen-denominated price during the period increased 14.2%.」

「In particular, the average LME cash copper price reached $10,129 in May, while the copper reference price temporarily reached ¥1,750/kg, with the weaker yen also contributing, and both set record highs.」

「The foreign currency asset-liability gap was reduced by strengthening overseas sales, and foreign exchange hedging was also enhanced, improving foreign exchange gains and losses, although」

「Foreign exchange loss 56,496 9,896 Derivative trading loss 48,869 -」

「Meanwhile, non-operating expenses totaled ¥356 million, up 157.1% year on year, due mainly to interest expense of ¥126 million, up 1.9% year on year, a foreign exchange loss of ¥176 million and a derivative trading loss of ¥50 million.」

「Foreign exchange loss - 54,282」

「Meanwhile, the yen appreciated sharply as expectations grew that the pace of U.S. interest-rate hikes would slow, and the Bank of Japan expanded the permitted fluctuation range for long-term interest rates, among other factors.」

「As a result, during the 1st quarter of the current consolidated fiscal year, revenue increased to ¥21,160 million, up 4.7% year on year. However, trading margins narrowed because of tight supply and demand for raw materials, and the recognition of foreign exchange losses and other items resulted in operating income of ¥89 million, down 81.7% year on year, and an ordinary loss of ¥23 million, compared with ordinary income of ¥411 million in the same quarter of the previous year,」

「Copper prices had remained firm at high levels, but plunged from the third quarter onward due to deteriorating conditions in China's property market, the impact of its zero-COVID policy, monetary tightening by major central banks and soaring energy prices resulting from sanctions on Russia. The London Metal Exchange 3-month copper futures price reached a low of $6,955, its lowest level since 13 November 2020.」

「The price of copper, our Group’s core product, remained firm at high levels as concerns about tight supply and an economic slowdown offset each other. It reached $10,845 in the London Metal Exchange copper 3-month futures contract, setting a record high for the first time since 10 May 2021, while the average yen-denominated cash price during the period rose 32.6% year on year.」

「The price of copper, the Group's main product, remained at a high level against a favorable supply-demand backdrop arising from tight supply.」

「The price of copper, the Group's main product, fluctuated at a high level as positive and negative factors offset each other, including inflation concerns arising from expectations of an economic recovery and growing expectations of tapering, or reduced quantitative easing, centered on the United States, as well as supply constraints and lower production resulting from the resurgence of COVID-19 infections.」

「These factors give rise to risks that fluctuations in non-ferrous metals prices may cause trading margins and the valuation of inventories of raw materials and other items to fluctuate, potentially affecting results. In recent years in particular, price volatility has increased substantially due to the inflow of speculative funds into commodity markets, and the level of risk has increased. The Group therefore hedges risk using London Metal Exchange (LME) futures and other instruments, but there is no guarantee that these measures will completely eliminate the risks, and the Group's results could be significantly affected.」

「The price of copper, our Group’s core product, reached $10,747.5 in early May in the London Metal Exchange copper 3-month futures contract, setting a record high for the first time since 15 February 2011, against favorable supply and demand conditions driven by expectations of economic recovery centered on the United States and China and of copper demand from the green revolution. The average yen-denominated cash price during the period also rose 41.6% year on year.」

「The price of copper, the Group's main product, maintained an upward trend throughout the quarter on economic stimulus measures and a strong recovery in the Chinese economy, reaching its highest level since August 2011 in late February. The average yen-denominated cash price during the period was also 22.3% higher than in the same quarter, resulting in a substantial improvement in trading margins.」

「In recent years in particular, price volatility has increased substantially due to the inflow of speculative funds into commodity markets, and the level of risk has increased.」

「The average yen-denominated cash copper price during the period decreased 11.5% year on year, while sales volume also decreased 9.9%. As a result, revenue for the cumulative nine months of the fiscal year was ¥30.404 billion, down 21.0% year on year.」

「In terms of profits, although the average yen-denominated cash copper price during the period was down 6.7% year on year, it rose gradually from the beginning of the period through the latter half against growing expectations of an improvement in the global economy, as described above. In addition, stronger inventory management enabled us to maintain stable procurement prices, resulting in solid profitability.」

「The price of copper, the Company's main product, reached a low of $5,518 at the start of the period, the lowest level since May 2017 based on the London Metal Exchange 3-month copper futures price. It then moved gradually higher on expectations of an improving external environment, resulting in a substantial improvement in trading margins. However, the average yen-denominated copper price during the period was down 9.7% year on year.」

「Profit conditions became challenging as the price of copper, the Company's main product, fell 8.5% year on year on an average LME flat price basis during the period, while lower prices also tightened supply and demand for scrap.」

「Trade tensions between the United States and China intensified during the fiscal year, and the resulting stronger protectionist moves kept copper prices, which affect the prices of the Group's main products, on a weak trend. Foreign exchange loss - 6,778」

「Foreign exchange loss - 3,017」

「Over the following 2 months, prices plunged by approximately $1,600, or 21.4%. Market conditions surrounding the Company changed significantly, with inventory valuation gains and losses worsening and trading margins deteriorating as domestic supply and demand tightened because of lower market supply.」

「Prices for the products handled by the Group are strongly affected by daily non-ferrous metals prices and foreign exchange rates. Accordingly, managing price fluctuation risk and foreign exchange risk is extremely important to the Group.」