The Pulse: China’s potash moves; Gold in a rut; New storage batteries
It was only a matter of time until China took steps to control at least some of its own potash supplies, so dependent is it on the world’s big suppliers. Thus we see a report in The Wall Street Journal that Yanzhou Coal Mining Co is considering listing on the Toronto exchange its Canadian potash properties. The company concedes it needs to raise capital as it is also planning further investment in its Australian coal mines.
The Shandong-based company in 2011 bought 19 potash mineral exploration permits in Saskatchewan for $260 million. The company says initial data shows the potential for 39.7 billion tonnes of potash across the properties.
China first began getting really alarmed back in 2010 about what potash imports might cost it when BHP Billiton made its ill-fated bid for Potash Corp of Saskatchewan. The Chinese could clearly see being caught in the same position as they were with iron ore, whereby the combined power of BHP, Rio Tinto and Brazil’s Vale had China over them a barrel in terms of being a price-taker. China’s potash importers had watched as prices, which had been around $200/tonne in 2007, started moving upwards real fast. Historically, potash had been selling for decades for less than $200/tonne but multiplied by 250% between January 2008 and 2011.
It was decided that Zhongchuan International Mining (which has gold and lithium production) through its subsidiary M&J Potash and Taiji Resources would begin staking potash properties in Canada.
At that time, Chinese farms were using 11 million tonnes a year of potash, 70% of which was imported. Beijing had ordered more effort to find new domestic sources but there has been no great breakthrough. According to the Chinese Academy of Geological Sciences at the time, China’s reserves were described as largely being “low-grade salt lake potash”.
Passport Potash has a useful page on its website regarding China. The broad facts are that 1.4 billion people live in China, its uses more fertilizer than any other country (29% of world consumption), its per capita renewable water resources are well below global average levels, it has a large urban population experiencing a rising standard of living, domestic meat consumption has risen seven-fold over the past 30 years while fruit and vegetable consumption is up 10-fold over that same period.
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According to a OECD paper published last year, China’s entire output is less than for one company, Germany’s K+S, and just a little more than Jordan’s Arab Potash Co. It is dwarfed by the production from the large North American and Russian/Belarus players. The OECD paper estimated that the higher prices of imports are costing China around $500 billion a year extra
The China potash supply story has a long way to run.
GOLD: The yellow metal is stuck in a rut, according to London-based analyst Anne-Laure Tremblay. In her latest report for BNP Paribas, Tremblay makes the point that since her previous note at the end of February there had been a number of events which should have been positive for gold. Only they weren’t. (As this was being written, mid-afternoon in Asia on Wednesday, gold had only just managed to claw its way back over $1600/oz in Asian trade.)
BNP thinks gold should have received a big boost from the Cyprus drama. After all, it’s not every day that a government decides it’s going to confiscate part of everyone’s savings held in banks. But nothing much happened on the precious metals front. (These are my words, not Tremblay’s, incidentally). She says that the risk-averse in Europe seem still to prefer the US dollar to gold as a safe haven.
Another factor operating against gold is that inflation fears regarding China seem to be subsiding. There’s not so much urgency being felt by Chinese to lock their wealth into something more certain that paper money.
BNP says many investors seem to think the Fed in Washington will ease off the money printing. No. As Tremblay puts it, QE is here to stay. But gold will stay range-bound for the moment.
SUSTAINABILITY: Japanese companies, including Toshiba and NEC, are unveiling mass-produced batteries at about a third the cost of ones now on the market. The Nikkei news service says that, with growing concerns about power shortages this coming summer, corporate customers are seen as being eager to cut electricity use.
Toshiba is about to release a hybrid lead/lithium-ion storage – the lithium-ion facility serving as a supplementary power source. Nikkei says NEC will release its new lithium-ion battery in September. In the past, such storage batteries have been too expensive for smaller companies to purchase. Lithium-ion batteries contain both graphite and lithium.
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