Investment

Sinochem, Sinofert watching BHP's bid

By Xiao Yu and Helen Yuan (China Daily)
Updated: 2010-08-27 15:26

Beijing - Sinochem Group, China's largest fertilizer trader, and unit Sinofert Holdings Ltd are "closely watching" BHP Billiton Ltd's $40 billion bid for Potash Corp of Saskatchewan Inc, an executive said.

BHP's bid for Potash Corp has a "significant impact" on Sinofert, Chief Executive Officer Feng Zhibin said in Hong Kong on Thursday. Feng, also a vice-president of Sinochem, declined to comment on whether they are considering a counter bid.

Sinochem made initial inquiries with Potash's board late last week about the possibility of holding talks, a person with knowledge of the matter said this week. Sinochem's interest would indicate China's desire to stop BHP from controlling more supplies to the world's biggest consumer of commodities after years of price tensions over iron ore.

"Sinochem and Sinofert will continue to closely watch the deal," Feng said. "Potash Corp and Sinofert have maintained very good relationships and Sinofert acts as the sole importer of Potash Corp's products in China."

Sinofert, 22 percent owned by Potash Corp, fell 4 percent, the biggest drop since July 29, to close at HK$3.84 (49 US cents) in Hong Kong trading.

Potash Corp, the world's biggest fertilizer producer, said on Aug 23 it began talks with other companies on alternatives to BHP's offer, which it said was inadequate. BHP, based in Melbourne, is the largest mining company.

China is the second-biggest importer of potash, a crop nutrient, after India. Demand may grow 5 percent to 6 percent annually in the next decade, Xu Hongzhi, an analyst at Beijing Orient Agribusiness Consultant Co, said Aug 20. The country buys almost half of its potash needs.

Sinofert plans to acquire assets in the Chinese fertilizer industry, which is "very fragmented," Feng said. There are 20,000 producers for compound fertilizer, he said. Producers with capacity exceeding 200,000 metric tons for nitrogen fertilizer accounts for just 40 percent of makers, he said.

"Securing coal resources and building nitrogen fertilizer capacity in coal-rich regions is a strategic layout for the company," Feng said. "We are doing initial work in China's western provinces and Mongolia and there are some target projects for coal resources."

Demand is increasing for potash, a form of potassium mined in Canada, Brazil, Germany and the US and used to boost crop yields by improving the ability of plants to withstand dry soil. China, the biggest consumer of rice, wheat and soybeans, needs more productive farmlands as it wants to supply food for 22 percent of the world's population using less than 10 percent of the globe's arable land.

Sinochem Group is listed as a key State-owned company under the nation's State-owned Assets Supervision and Administration Commission of the State Council. The group is China's biggest chemicals trader, fourth-largest oil company, and also has interests in real estate and finance, according to its website.

Bloomberg News