Market volatility risk in commodity futures and financial markets

「Because market distortions in arbitrage trading widened beyond our expectations, we recorded substantial valuation losses in the fourth quarter, reducing full-year operating revenue to a level only marginally above zero.」

「Although movements in spreads between domestic and overseas exchanges, particularly for platinum, contributed positively to arbitrage trading, arbitrage opportunities were limited over the full year and revenue remained sluggish.」

「In arbitrage trading, movements in price differentials between domestic and overseas exchanges, particularly for platinum, contributed positively. However, arbitrage opportunities declined compared with the first quarter, and earnings remained sluggish.」

「In commodity markets, crude oil and precious-metals prices, which rose sharply in the previous fiscal year in response to the situation in Ukraine, have regained stability and remained somewhat soft since the start of the current fiscal year. However, we believe it remains necessary to continue monitoring the situation in Ukraine, global inflation trends and monetary policy.」

「In the dealing business, trading opportunities were ultimately constrained because low volatility in the prices of major commodity futures contracts continued, and because positions were reduced to prepare for unforeseen risks after Russia launched its invasion of Ukraine, among other factors.」

「In precious-metals arbitrage trading, intermarket price differentials, which had frequently deviated during the previous fiscal year, moved closer to theoretical values except in some cases, reducing arbitrage opportunities.」

「During the cumulative second quarter period, the crude oil market remained firm and experienced less price volatility than in the same period of the previous year, when prices fluctuated sharply, including a temporary move into negative territory, resulting in fewer trading opportunities. In precious-metals arbitrage trading, intermarket price differentials, which had frequently deviated during the previous fiscal year, moved closer to theoretical values except in some cases, also reducing arbitrage opportunities.」

「In precious-metals arbitrage trading, intermarket price differentials, which had frequently deviated during the previous fiscal year, moved closer to theoretical values except in some cases, reducing arbitrage opportunities. However, we continued to execute profitable trades when deviations occurred.」

「Commodity markets generally became unstable in terms of supply and demand due to the impact of COVID-19, while transportation and storage were also affected, among other factors, widening price differentials between markets. During the second quarter of the current fiscal year, this trend toward wider intermarket price differentials continued, particularly for precious metals.」

「In the crude oil market, we were able to generate profits through arbitrage trading using price differences between markets and contract months. In precious metals arbitrage trading, meanwhile, price differences between markets remained unstable during the cumulative first quarter, and deviations from benchmark theoretical values continued, reducing earnings opportunities, although we were able to generate a certain level of profit.」

「Arbitrage opportunities in precious metals increased from the second quarter onward, and the Company generated a profit during the consolidated third quarter. However, this was not enough to recover the loss incurred in the first quarter.」

「Because the price of the overseas exchange memberships held by ASTRA社 had fallen by more than 50% from their book value as of the end of September, the Company recorded an impairment loss of ¥12 million as an extraordinary loss during the consolidated second quarter.」

「In arbitrage trading in gold and platinum, spreads widened in a one-sided move, resulting in losses on some trades. Even significant cost reductions pursued in recent years were insufficient to offset the decline in earnings, resulting in a segment loss.」

「Although earnings remained sluggish because there were many periods with limited trading opportunities due to lower futures price volatility and other factors, significant cost reductions pursued in recent years enabled the Company to secure a segment profit.」

「Although trading opportunities remained limited and earnings were sluggish over the cumulative third quarter of the current consolidated fiscal year, significant cost reductions pursued since the previous consolidated fiscal year enabled the Company to secure a segment profit.」

「However, over the cumulative third quarter of the current consolidated fiscal year, trading opportunities were extremely limited because of low price volatility and other factors, particularly the scarcity of arbitrage opportunities in the energy market, and earnings remained sluggish. As a result, operating revenue for this business during the cumulative third quarter of the current consolidated fiscal year was ¥365 million, down ¥141 million, or 27.9%, year on year, and the segment posted a loss of ¥72 million, compared with segment profit of ¥1 million in the same period of the previous year.」

「However, over the cumulative second quarter of the current consolidated fiscal year, trading opportunities were extremely limited, particularly opportunities for arbitrage in the energy market, and earnings remained sluggish. As a result, operating revenue for this business during the cumulative second quarter of the current consolidated fiscal year was ¥263 million, down ¥79 million, or 23.2%, year on year, and the segment posted a loss of ¥48 million, compared with segment profit of ¥5 million in the same period of the previous year.」

「As a result, operating revenue for this business during the consolidated fiscal year was ¥650 million, down ¥261 million, or 28.6%, year on year, and the segment posted a loss of ¥18 million, compared with segment profit of ¥119 million in the previous year.」

「In our main commodity markets, there were periods when trading opportunities increased sharply due to market volatility surrounding the UK's June referendum. However, over the first half as a whole, opportunities for the arbitrage trading in which our Group specializes were limited. In addition, amid heightened market volatility following candidate Trump’s victory in the November US presidential election, factors including a system failure at an exchange prevented us from generating significant earnings, resulting in lower revenue and profit than in the same period of the previous year. As a result, operating revenue for this business during the first 3 quarters of the current consolidated cumulative period was ¥506 million, down ¥126 million, or 19.9%, year on year, and segment profit was ¥1 million, down ¥51 million, or 96.9%.」

「Although open interest on the Tokyo Commodity Exchange, our main market, remained high, trading volume remained sluggish, and limited opportunities for arbitrage between markets and contract months led to lower earnings.」

「However, over the first quarter of the current consolidated cumulative period, trading opportunities were limited and earnings remained sluggish. As a result, operating revenue for this business during the first quarter of the current consolidated cumulative period was ¥168 million, down ¥31 million, or 15.9%, year on year, and the segment posted a loss of ¥1 million, compared with segment profit of ¥1 million in the same period of the previous year.」

「The performance of our Group is affected by market trends, and developments in global political, economic and social conditions have a significant impact on these markets.」