Chinese investors ‘do not want to become a Potash-like story themselves’

“Chinese companies that are looking to invest in Canada do not want to become a Potash-like story themselves. Face and company reputation are important,” Peter Harder, president of the Canada-China Business Council told The Globe & Mail in an interview in Beijing this week as Canadian and Chinese executives gathered for the council’s annual general meeting.

In August last year, the board of directors of Potash Corp of Saskatchewan – the world’s number one producer – announced they had received and rejected a $38.6 billion hostile bid from BHP Billiton and the Canadian government later blocked HBP’s bid citing the Investment Canada Act.

The Globe and Mail reported in August after using the Act to shut down BHP’s bid, then-Industry Minister Tony Clement promised to explain what companies can do to provide a “net benefit” to Canada. That clarity has yet to be provided.

Potash Corp stock is down over 20% so far this year on the Toronto-bourse where it is worth $34.83 billion. MINING.com reported on possible reasons why investors so quickly temper their optimism about the prospects of the world’s largest potash miner despite the company’s consistent stellar results.

And while the federal government’s blocking of the deal certainly hurt the reputation of BHP and its CEO Marius Kloppers, the miner is now accelerating development of its massive Jansen potash project in the province. It is also not playing by the decades old rules of the Canadian potash industry.

The global potash market is controlled by about 10 mainly Canadian companies and a couple of Russian producers. Canpotex, the global marketing and distribution company for Potash Corp., Mosaic and Agrium, together with Russia’s Uralkali and Beluraskali’s export arm account for around 57% of global supply.

The Financial Times last week quoted Tim Cutt, president of BHP’s diamonds and specialty products: “We believe in taking the price of the day, and so the likelihood is that we would not market through Canpotex. We’d market in a very consistent manner with the rest of our commodities.”

The potash price is currently hovering around $500/tonne and is notoriously volatile. Potash ran up from $100/tonne in 2004 to $870/tonne in the run up to the 2008 recession when the boom went bust and prices rapidly fell back to $350/tonne. Scotiabank recently said demand is weakening and after two years of steady price hikes 2012 will see no growth.

Prices will also come under pressure as world potash production soars in the coming years with Russia’s Uralkali, world number 2 producer, announcing this week it is spending $5.8 billion to boost capacity by 80% over the next decade. Ethiopia, once synonymous with famine, has attracted $6.5 billion worth of potash investments from among other BHP Billiton and Canada’s Allan Potash according to statement from the country’s mines minister released last week.

MINING.com reported in September a US federal appeals court threw out an antitrust class-action lawsuit accusing seven companies of engaging in a global conspiracy to raise the price of potash since 2003 on the grounds that it could not rule on the alleged wrongful conduct on markets in India, China and Brazil.

 

Image by rook76 / Shutterstock.com. 24 January 2001 – 11 February 2002 was the Chinese year of the Metal Snake

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