By James Topham and Yuka Obayashi TOKYO (Reuters) - Japanese trading house Mitsui & Co (T:8031) may miss the current year's profit target of $1.1 billion for its metals business due to the slump in iron ore, warned a senior executive, who said prices may fall to as low as $80 a tonne before rebounding.
Mitsui expects prices to rebound to $100 as early as the end of the year and the trading house's iron ore business will remain profitable even if prices fall as much as 30 percent, Hiroyuki Kato, Mitsui's executive in charge of energy and metals, told Reuters in an interview on Wednesday.
But his comments show that miners and investors in iron ore projects are feeling the pressure as demand drops in China, which takes in two-thirds of the world's shipment of the steelmaking ingredient.
"There is a risk that the mineral and metal resources unit will miss our forecast," Kato said. "It depends on how much impact from the slumping iron ore prices can be offset by cost cuts and production expansions."
Mitsui is forecasting profit of 380 billion yen ($3.56 billion) for the year through March, of which the mineral and metal resources segment is expected to contribute 118 billion yen ($1.10 billion).
Kato did not say by how much it may miss the target.
Spot iron ore prices have slumped 39 percent this year as growth in supply from low-cost leading miners outstripped the increase in demand from China.
The big-three iron ore miners - Rio Tinto (L:RIO) (AX:RIO), BHP Billiton (AX:BHP) (L:BLT), and Vale (SA:VALE5), in whose holding company Mitsui has a 15 percent stake - are betting they can force out smaller competitors by ramping up production.
Iron ore for immediate delivery to China <.IO62-CNI=SI> dropped to $82.20 a tonne on Wednesday, the lowest since September 2009, according to data provider Steel Index.
"Iron ore prices may fall to as low as around $80, but that will put more suppliers in distress and force them to cut production capacities," Kato said.
"We think that the recent fall in iron ore prices is a temporary phenomenon and prices are likely to come back to around $100 soon ... by the end of this year or the end of this business year," through March, the Mitsui executive said.
World No.2 iron ore miner Rio Tinto expects other miners worldwide to cut 125 million tonnes of iron ore capacity in 2014, roughly equal to the amount of new supply expected to come on stream from Australia and Brazil.
Mitsui had an annual iron ore output of 51 million tonnes in the last business year to March 31 through its equity holdings in mines.
Kato said Mitsui is sticking to a plan to boost output to 69 million tonnes by 2020.
LONG-TERM LNG BUYERS
Japanese trading companies have wide-ranging business portfolios often seen as similar to investment banks.
Mitsui, Japan's second-biggest trading house after Mitsubishi Corp (T:8058), has spent over $18.6 billion on acquisitions since the start of the current decade, with 43 percent of that in the energy sector, Thomson Reuters data showed.
Kato said the trading house and its partners have secured buyers for about 70 percent of output from their liquefied natural gas (LNG) project off the coast of Mozambique.
It has a 20 percent stake in U.S.-based Anadarko Petroleum Corp's (N:APC) gas project off the coast of Mozambique, which is working to become the first East African nation to export LNG, aiming to ship 10 million tonnes per annum of the superchilled gas. The first shipments are expected in 2018 or 2019, Kato said.
Anadarko and Mitsui are aiming to secure long-term buyers for between 85 and 90 percent of the offtake of the huge gas field, Kato said.
For Cameron LNG project in the U.S. state of Louisiana, which is owned 50.2 percent by U.S.-based Sempra (N:SRE) and 16.6 percent by Mitsui, the production of its stake, or 4 million tonnes per annum, is "almost sold out", Kato said.
Mitsui will focus on three major projects, Mozambique, Cameron and Browse, in which Australia's Woodside Petroleum (AX:WPL) holds the biggest stake and Mitsui owns a minority stake, Kato said.
The Japanese trading house is also keeping an eye out for other opportunities.
U.S. oil and gas company Apache Corp (N:APA) said in July it plans to sell interests in Australia's Wheatstone and Canada's Kitimat LNG projects.
"We can't say we are not interested. But we are focusing on the three main projects for now," Kato said, when asked whether Mitsui is interested in the Wheatstone project.
(Editing by Aaron Sheldrick and Muralikumar Anantharaman)