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Web Site: Bhp Billiton
Other Articles: 28-01-201019-01-201018-01-2010

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A new force in industrial minerals is taking shape in Africa, following on from Gulf's acquisition of world class vermiculite assets from Rio Tinto International in 2009.  

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Monday March 15, 09:01China's growth boosting commodity prices

The latest economic figures from China have put pressure on the dollar and boosted a number of high-yielding currencies, including the Australian dollar and the South African rand.

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Bhp Billiton

Bhp Billiton

BHP Billiton plc is a diversified natural resources company producing alumina and aluminum, copper, coal, iron ore, nickel, manganese, oil and gas and uranium, as well as gold, zinc, lead, silver and diamonds.
Monday, February 08, 2010

BHP Billiton and Vale stir up potash fever

by Metalsplace.com company news image

Potash prices soared in 2007 and 2008, quadrupling to $1,000 a tonne. The gains were driven by expectations of strong demand from emerging markets with growing and gentrifying populations and the rush to biofuels as an alternative to oil.

Since then, producers have been cutting back and prices have been tumbling. However, it appears a bottom has been reached and corporate activity in the sector is increasing, with mining giants BHP Billiton and Vale announcing new acquisitions last week.

China settling a contract on January 5 also set a floor under the price. The country agreed to buy potash from Belarusian Potash Co at $350 a tonne. On January 17 another deal was stuck with Israel Chemicals at $355 a tonne. China is the world's largest buyer of potash, so this level is being regarded as a bottom.

China needs lots of fertiliser not only because of its massive population, but because of the quality of its agricultural land. It is very poor. China has about one fifth of the world's population but about 7pc of the world's arable land. Significant tranches of the land it does have are polluted with heavy metals and desertification is also a real problem.

As crop prices have been weak and as the economy seized up, farmers have not been making potash purchases. Indeed, the Chinese contracts announced this month should have been made months ago.

This means that all parts of the supply chain are running out of stocks. When major planting in the northern hemisphere gets under way in April prices should start to recover. Many farmers have not applied fertiliser for a couple of years and soils need revitalising.

These prospects prompted William Doyle, chief executive of Canada's Potash Corp of Saskatchewan, to say last week that Belarusian Potash and Israel Chemicals should have negotiated a better deal with their Chinese clients.

However, Mr Doyle could have been trying to talk his own book.

Potash Corp supplies about 20pc of the world's potash. Shares in his company were hammered last week after the group unveiled a 70pc drop in quarterly profits and gave future profit guidance that was well below market expectations.

However, in the conference call after the announcement, Mr Doyle said the group was seeing an increase in North American potash demand. In the first three weeks of January, Potash Corp sold more potash in North America than it did in the first eight months of 2009.

Also on Thursday, BHP Billiton unveiled a major potash acquisition. The company bought Athabasca Potash Corp for C$341m (£200m). This is a neat purchase because it is adjacent to BHP's Jansen potash development in Saskatchewan, to which BHP recently pledged $240m (£150m) of funds.

Jansen, which could take up to $10bn to develop, is slated to start production in about five years. The project will have capacity of approximately 8m tonnes a year – the same as current production from Potash Corp.

BHP is not the only mining group wanting to get into the agricultural market.

Also last week, Brazilian group Vale agreed to buy the South American fertiliser assets of Bunge, a US commodity supply chain company, for $3.8bn. It then announced the purchase of a 16pc stake in Fertilizantes Fosfatados of Brazil.

The moves by BHP and Vale certainly makes sense. China could consume as much as 26m tonnes of the fertiliser each year within the next 15 years, according to a forecast from the International Plant Nutrition Institute. Potash Corp forecasts China will consume 8m to 9m tonnes in 2010.

Demand for food in the rest of the world is also going to jump, so increasing crop yields is important.

The global population is expected to soar to 9.1bn people in 2050 from 6.8bn now, according to the United Nations. So, BHP and Vale's diversification into potash looks like a smart move. The industry is at a bottom – Morgan Stanley expects demand to jump 50pc in 2010 – and there is a long-term bull case for the agricultural sector.

Potash is one of the few commodities where the price is yet to recover. It appears to be at an inflexion point and the big boys want to get in on the act. All of this means that now looks like a good time to get back into the pure fertiliser producers, before the recovery takes hold.

www.metalsplace.com

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