A humble mineral, potassium, has ignited a financial war. One of its derivative, potash, is the epicentre of complex negotiations aiming to buy a Canadian company with the same name. Potash is a Saskatchewan-based private company, able to cater 20% of world needs. Its commodity is a fertilizer , a vital necessity for the years to come for any agriculture. China, India and other populous countries are desperately in need of potash, whose growth in consumption is expected at around 10% in the next 10 years.
Since BhpBilliton, the biggest mine company in the world, has launched a 39-billion-USdollar hostile takeover offer to buy Potash, frenzy caught up with the market. Canadian owners initially rejected the offer which was eventually extended until next November. They are looking for alternative offers to get a better price. In this context Sinochem joins the fight, the SOE giant, the biggest chemical company in China. Potash is vital for a country having 7% of the world arable land to feed 23% of the global population. Urbanization and motorization consistently cause loss of huge acreages every year; despite yields being already satisfactory (second only to Japan in Asia), they are to be kept high. Self-sufficiency in food is a death-or-life issue for China. Domestic production of potash is on the rise, but very fragmented (20.000 producers) and still insufficient; imports are crucial, but must be guaranteed and cheap. If there is a cartel for potash, China is weak. This is the reason Sinochem is working to form a consortium for an alternative offer to Potash. Its attempts so far have proved fruitless.
For different reasons UralKali, a Russian group, Temasek, the Singapore SOE, and a private Canadian pension fund, declined to join Sinochem’s offer. In addition, Ottawa, might express concern to sell Potash to a Chinese buyer who could also become Potash’s largest client (conflict of interest looms in the background), while it needs China to counterbalance BhpBilliton’s offer. The anglo-australian giant is the most probable winner, but Sinochem might gain a minority equity position. This would make possible to rise the offer price and, at the same time, guarantee China with regular supplies. It would confirm that, as of today, Beijing might rank food security more important than profit or ownership.