How Japan's Marubeni stumbled in China after rapid expansion

Sun May 11, 2014 5:13pm EDT
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By James Topham and Niu Shuping

TOKYO/BEIJING (Reuters) - A year after spending $3.6 billion to buy grain trader Gavilon to expand in China, Japan's Marubeni Corp (8002.T: Quote) has been shaken by defaults on soybean sales and faces an investigation into alleged tax evasion in the world's top food consumer.

Its aggressive expansion, fuelled by offering flexible terms on soybean contracts and a willingness to deal with less-established customers, has been blamed for making it more vulnerable to buyers walking away from deals in a shaky market.

The problems in China come as the Japanese trading house also faces more competition. Chinese state trader COFCO Corp has gone on its own spending spree and may soon rival Marubeni, the top grain exporter to China, as it builds its own trading house.

"The rapid expansion that Marubeni is pursuing has caused them to take risks that other grains companies would not in their pursuit of business," said Nobuyuki Chino, president of Tokyo-based Continental Rice Corp, who has spent more than 35 years trading grains, including as a broker for Gavilon.

Asked about its business operations in China and any problems it faced, a Marubeni spokeswoman said China was one of its most important markets and it would ensure stable supply.

Chinese buyers have recently defaulted on at least 500,000 metric tons of soybean shipments and threatened to default on more than 20 physical soybean cargoes, which have not yet been priced.

Marubeni President Fumiya Kokubu said on Friday the firm, which supplies a quarter of China's soybean imports, had suffered defaults on as many of three of its cargo shipments by Chinese buyers in late March and early April.

Another Marubeni official, who requested anonymity, said all companies operating in the Chinese grain market had faced a "perfect storm", with tightening credit, sliding crushing margins and the first fall in feed demand in recent memory.   Continued...

A logo of Japanese trading house Marubeni Corp is seen on the company's headquarters in Tokyo May 29, 2012. REUTERS/Yuriko Nakao