http://www.marketwatch.com/story/china-sets-sights-on-potash-inve...

http://www.marketwatch.com/story/china-sets-sights-on-potash-investors-take-notice-2010-09-10


Share | Recommend (2) PrintEmail Alert By Myra P. Saefong, MarketWatch
HONG KONG (MarketWatch) -- When the world's most populous nation sets its sights on securing a resource, it's in the best interest of investors to take notice -- and potash looks like China's next target.

Potash is a key ingredient used in making fertilizers, which boost crop yields.

"China is potash-deficient. It has to import potash," said Chris Mayer, a managing editor for Agora Financial and contributor to The Daily Reckoning. Since the nation is trying to boost food production, potash is a key resource needed to accomplish that goal, Mayer said. Read some of Mayer's articles on commodities.

Where the Water Buffalo Roam
Throughout Asia, many farmers are replacing their water buffalo with more efficient modern tractors. WSJ's Patrick Barta reports on efforts in Thailand to keep the iconic beasts of burden on the job.

It's no surprise then that China watched closely when Potash Corp. of Saskatchewan Inc. (POT 55.90, -0.01, -0.02%) (CA:POT 54.49, -0.25, -0.46%) , which controls about 20% of global potash production capacity, rejected a $36.8 billion bid from Anglo-Australian mining giant BHP Billiton Ltd. (AU:BHP 44.74, +0.03, +0.07%) (BHP 91.31, +0.05, +0.05%) in August.

China's state-owned Sinochem Corp. has hired investment bankers to probe a role for it in the fertilizer company's future, according to a report in The Wall Street Journal. See WSJ story.

News reports this week said Sinochem has also approached Singapore's Temasek Holdings regarding the possible creation of a bidding consortium for Potash Corp.

'It makes sense to me that China would be worried about BHP taking the lead role in yet another mineral oligopoly.'

David Coffin, HRAAdvisory.com
"The biggest player in that subsector [potash] has a takeover bid from BHP Billiton, which is the same company that forced China's steel mills to accept higher prices for iron ore by forming an alliance with its 'competitors,'" said David Coffin, editor of HRAAdvisory.com.

"It makes sense to me that China would be worried about BHP taking the lead role in yet another mineral oligopoly," he said.

China's actions have raised questions as to whether it's trying to monopolize resources. The nation has become a key supplier of numerous metals, including zinc, gold, and tungsten. For example, as the world's largest consumer of zinc, China was central to the metal's price spike to all-time highs in 2006. The country also controls the majority of the world's rare-earths market. Read about China's role in rare earths.

And now China is turning its attention to potash.

"China has this problem of a scarcity of agricultural land versus the number of people living in China, so they need fertilizer for high-crop yields from the little land per capita that they have got," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

Securing its place

For China, resource security, particularly when it comes to food, is essential.

"BHP has been trying to take over the Canadian Potash Corp., basically as a play on rising demand from agricultural companies for fertilizer (especially from China)," said Hennecke. "China is trying to prevent this for fear about their food security -- fearing that if BHP takes over Potash Corp., they would hike fertilizer prices in sales to China."

POT 55.90, -0.01, -0.02%

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