Tug of War over PotashCorp
BHP bid signals realignment in global N-P-K sector
It’s a pretty safe bet: As the world’s population increases, so too will demand for food. That makes fertilizer – and its three primary ingredients nitrogen (N), phosphate (phosphorus or P) and potash (potassium or K) – a high-growth industry. [See related “From Few to Many” on global trade in potash.]
Over the long-term, that is. In the year-and-a-half just past, fertilizer sales overall have been flat, a victim of a spike in pricing, global recession and local weather conditions. According to the International Fertilizer Industry Association, farmers have been reducing or postponing investment in agricultural inputs. Since demand for seeds and N fertilizer is relatively inelastic, the big cutbacks have been in P and K fertilizers and in crop protection products. The IFA estimates that world consumption of P dropped 11%, while K use was down 20% in 2008-09.
Now the IFA forecasts a rebound, with demand for hardest hit K forecast to grow 18% in 2010-11. But the recession has set the stage for realignment and very likely consolidation within the sector.
During the downturn, shares of Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer company by capacity and its leading producer of potash, took a tumble – making it a take-over target for Melbourne-headquartered BHP Billiton, a multinational with diversification plans that include achieving “an immediate leadership platform in the global fertilizer industry.”
The PotashCorp board rejected BHP’s unsolicited bid and is said to be in talks with alternate suitors, including Rio Tinto, a British-Australian mining company, and the state-owned Sinochem Group of China. One potential bidder, Brazil’s Vale, has said it’s not interested and announced it will invest $12 billion by 2014 to become the world’s second-largest phosphate and potash producer. Last week a consortium led by Chinese private-equity fund Hopu Investment Management Co. was reported to be looking into the feasibility of a bid.
Meanwhile, Russia’s antitrust watchdog says that country’s two largest potash producers, OAO Uralkali and OAO Silvinit may be allowed to merge into a national monopoly. At the same time, Rio Tinto and PotashCorp are each seeking to buy a 10-to-15% share of Uralkali.
Clearly, these are just the opening moves in a realignment of suppliers of a critical resource. Nor will potash be the only piece of N-P-K in play. BHP has already said that, should it acquire PotashCorp it will likely sell off its nitrogen and phosphates businesses.
Date posted: August 31, 2010