China Potassium Fears Repeated Iron Ore Failure

BHP Billiton’s acquisition of Potash Corp, the world's largest fertilizer producer, may evolve into a global resource battle.

At present, Potash Corp officially rejects BHP Billiton's $39 billion hostile takeover bid while seeking worldwide companies that can offer competitive offers. The market has successively announced that Sinochem Group, China Private Equity Investment, and Rio Tinto all intend to bid. Since once BHP Billiton's acquisition is successful, it will monopolize the supply of potash fertilizer globally to a certain extent, weakening the bargaining power of importing countries, so this acquisition has caused great concern in the Chinese and foreign potash industry.

As China, the largest net importer of potash fertilizer, domestic companies are worried that they will repeat the iron ore shortage on potash fertilizer. Whether or not China will stop BHP Billiton's purchase of Rio Tinto just two years ago has triggered many speculations.

Grab the Potassium War

On August 23, Potash Corp formally rejected BHP Billiton’s hostile takeover offer and stated that the “numerous” potential competitors’ offer price will be the most important factor in determining whether the company will sell. Potash Corp intends to exert pressure on BHP Billiton to raise prices.

However, BHP Billiton is not just waiting for someone else. It is reported that at present, BHP Billiton has successfully obtained a total of US$45 billion in "acquisition specials" from six banks, including Barclays and JP Morgan Chase, creating the largest scale in the world since February 2008. An acquisition of debt** project. At the same time, it confidently considered the size of the acquisition, and there are not many potential bidders.

There were four rumours at a time, among which the state-owned Sinochem Group received much attention. As China is the world's largest potash fertilizer consumer and net importer, it is also one of Potash Corp’s largest customers. At the same time, Potash Corp is the second largest shareholder of China Chemical Fertilizers subsidiary Sinofert, holding 22% of the shares. . More profoundly, Sinofert is the second largest shareholder of potash fertilizer (000792.SZ), the largest potash fertilizer company in China. Therefore, if BHP Billiton succeeds in this acquisition, it means that Sinofert will indirectly fall into the hands of BHP Billiton and endanger the safety of the domestic potash fertilizer industry.

In response, the spokesman of Sinochem Chemical Group responded in a low-key manner: “There are all kinds of rumors in the market. We don’t respond and confirm. Because this matter is a major event in the world fertilizer industry and the domestic fertilizer industry, and we are with Potash Corp. With decades of cooperation, the company will pay close attention to and carefully evaluate the development of the incident."

Since potash is one of the country's strategic industries and involves agriculture that affects the people's livelihood, it is thought that the side effects of its control are as far-reaching as iron ore. "This is similar to BHP Billiton's 2008 acquisition of Rio Tinto, when state-owned China Aluminum Corp. and Alcoa took part in shares of Rio Tinto, which prevented BHP Billiton's companies. But at present, no Chinese companies have proposed to deal with Potash Corp. Similar mergers and acquisitions transactions, and as the most direct benefit of the Sinochem Group should consider participating in the bid.” An insider expressed hope that the Sinochem Group came forward, he said, including the external dependence of iron ore, potash, etc. In high-level industries, preventing monopoly is a frustrating measure. It is better to directly participate in shares or even holding shares.

In addition, the market has also reported that a consortium led by China's private equity investment company, Hopu Investment Management, is considering taking bids. At the same time, Rio Tinto was also reported to be able to join Sinochem Group or China National Offshore Oil Co., Ltd. in the bid to stop the acquisition of BHP Billiton.

Pricing mechanism comparable to iron ore

“If the acquisition is successful, the monopoly pattern of global potash supply will certainly increase, and for us, it will weaken the bargaining power of potash import negotiations.” A manager of Shanghai Agribusiness Company believes that the attempt of BHP Billiton acquisition is the ultimate discourse for potash pricing. right.

BHP Billiton's corporate strategy is to develop, own and operate a large-scale, low-cost, long-cycle, scalable, export-oriented and diversified first-class asset portfolio. Beyond iron ore, BHP Billiton took a look at potash. It is understood that as early as 2003, BHP Billiton aimed at Potash Corp, and from the beginning of 2006 in the global potash mine layout. In particular, in 2008, BHP Billiton bought Athabasca, Canada’s second-largest potash fertilizer producer, for a price of 341 million Canadian dollars. At the same time, the company’s planned production capacity also jumped to over 10 million tons, reaching the current global potash fertilizer. More than 20% of production. At present, Potash Corp has at least 10 million tons of potash fertilizer capacity per year.

According to Li Feng, an analyst at Zhuo Chuang Potash Fertilizer, BHP Billiton's ambitions for the layout of potash fertilizers in the world have been obvious in the past few years, and he tried to monopolize the supply of potash fertilizer through a series of mergers and acquisitions.

At present, China's potash fertilizer import negotiation mechanism is similar to that of iron ore before. It is understood that China began to participate in the negotiations on potash fertilizer since 2005. Under the unified organization of the China Minmetals Chemicals Import and Export Chamber of Commerce, China’s major fertilizer companies established a potash import negotiation mechanism, including a group of more than 10 state-owned and non-state-owned companies. It is Sinochem Group, China Agricultural Assets Group, and CNOOC. These three companies also have the right to speak in the negotiations.

According to industry analysts, the world’s giants of potash fertilizer suppliers gradually formed interest communities during price negotiations. It is controlled by potash giants such as Canpotex (composed of Potash Corp of Canada, Mosaic of USA, Canada, Canada), IPC (composed of Uralkali of Russia, Silvinit, and BPC of Belarus) and Israel Chemicals Ltd. of Israel.

“However, the domestic fertilizer companies are seriously affected by the price of potash imports. For example, the market price set at the end of 2008 when negotiating long-term contracts was relatively high. As a result, the shrinking market demand led to price decline in 2009, and many domestic companies suffered losses. In 2009, there were many Therefore, the fertilizer plant has stopped production.” A person at the above-mentioned Shanghai Agricultural Resources Company stated that there are still high-priced potash fertilizers imported in 2009 from the company's warehouse.

As a result, the industry’s concerns about the acquisition of BHP Billiton are obvious, because once the global monopoly of potash supply is further intensified, Chinese companies will be more passive.

China currently has no good policy

In addition to responding to the BHP Billiton acquisition, does China have a better response to potash fertilizer resources?

Duan Shengqing, the largest potash fertilizer company in China and the deputy general manager of Qinghai Salt Lake Potash Fertilizer Sales Company, told reporters that the current annual output of salt lake potash is about 3 million tons, accounting for 30% of the entire domestic consumer market, and now China's annual consumption of potash is 800%. Ten thousand tons to 10 million tons, of which about 50% rely on imports.

However, at present, China is gradually raising the self-sufficiency rate of potash fertilizer. Guo Tao Junan chemical industry analyst Wei Tao believes that there are currently two major potash fertilizer bases in Qinghai Salt Lake and Lop Nur. Currently, Qinghai Salt Lake has a production of 4 million tons, and Lop Nur Lake has 1.2 million to 1.3 million tons. With the commencement of production of some large projects, It is estimated that China's annual potash fertilizer production can reach 8 million to 9 million tons. Even if over the past 10 million tons of potassium fertilizer consumption every year during the peak period, we can also increase the self-sufficiency rate to 70%.

As one of the country's strategic industries, potash fertilizer, according to the long-term plan put forward by relevant parties, domestic supply of potash fertilizer will form a 1:1:1 pattern, namely one-third of domestic, imported and overseas. In addition to increasing domestic production, Chinese companies have also gone out. According to report, the current domestic enterprises' exploitation of potash has achieved initial success. Chinese enterprises have five projects in Laos, one of which has already produced output; there are two projects in Canada; two projects in Congo (Brazzaville) One of them is still negotiating.

"Because China's agriculture is relatively fragmented and the interests of enterprises and farmers cannot be claimed in a timely manner, it is often necessary to wait until the price of potassium fertilizer rises too sharply before realizing that the interests have been impaired. Therefore, the country must have long-term strategic support in this regard. "An industry source said.