Eoin Treacy's view -
Less than a month after making waves with news of a move into Barrick Gold Corp., Buffett is again rocking the world of commodities. This time, Berkshire Hathaway disclosed stakes in five Japanese trading companies that dominate the nation’s energy and raw materials industries. The quintet are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp.
Berkshire’s stakes amount to a little more than 5%, but Buffett made clear that they could be increased. The trading houses are known as “sogo shosha” and have roots dating back hundreds of years. While they operate in areas like textiles and machinery, they derive much of their revenue from energy, metals and other commodities, supplying resource-poor Japan with essentials.
Following the commodity bust many investment banks closed trading desks. There were a number of leading commodity trading houses which went through very lean years and even today Noble Group is struggling to get out of bankruptcy. Many of the big commodity traders like Trafigura, Mercator, Cargill and Koch Industries are privately held. Picking up Japan’s big trading houses is a tangential way of playing in commodities for Berkshire Hathaway. It also speaks to the company’s familiarity with pricing the balance sheets of banks rather than commodity producers.
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