Senior members of the Communist Party of China (CPC) will meet next month in Beijing to discuss reform and development in the rural areas, according to an article in today’s China Daily.
If the reforms that come out of the meeting are strong enough potash could see a major boost, according to emerging markets expert Irwin Greenstein.
Irwin says there are nine major potash players worth a look. Depending on the outcome of the CPC’s Beijing powwow, Potash could become one of the best indirect China plays out there.
Potash is a major component in fertilizer. It has greatly benefited from the emerging market boom, as people overseas move up to the middle class. That means more meat on the table and the adoption of Western diets, such as fast foods, which are laden with meat.
As a result, meat consumption in China has tripled in the last 20 years to 70 million tonnes and is expected to grow further.
The connection, of course, is that cows, pigs and other farm animals are fed grains, which need fertilizer to grow.
The price of phosphate has hit $1,000 a ton, up from $365 last year, according to Green Markets. The price of a ton of potash has gone up over 200%.
China is susceptible to potash prices. Earlier this year, China agreed to pay $576 per ton of potash, up $400 from its previous deal in 2007, to Canpotex, a potash export cartel protected by an exemption in Canada’s Competition Law.
As China Daily reported, the CPC decided China must unswervingly push forward rural reform. In this process, efforts must be made to consolidate and strengthen agriculture to solve the issue of feeding more than 1 billion citizens.
The CPC now wants to rely more on domestic production over grain imports. The goal is to accelerate agricultural modernization and protect farmers’ rights.
Between droughts, pollution and the August 2008 earthquake China’s agricultural sector has experienced dramatic setbacks. During the earthquake thousands of hectares of farmland were destroyed, millions of farm animals died, grain stores collapsed and thousands of pieces of machinery were rendered useless.
A considerable share of wheat crops could not be harvested due to the lack of labor. Much of the wheat harvested before the earthquake - around 350,000 tonnes in Mianyang Prefecture - was damaged in the collapse of grain stores.
In addition, thousands of greenhouses have collapsed, causing severe losses of vegetable crops. Vast seed growing areas in the province have also been badly hit by the earthquake
Pesticides and fertilizer shortages endanger food production, according to the UN’s Food and Agriculture Organization.
January 2007 saw China impose new taxes on grain exports. The duty on corn and rice has been set at 5% - a complete about-face from when Beijing was giving farmers sizable tax rebates for their grain exports.
Although China is the world’s biggest grain producer, it has been immune from the food inflation running rampant throughout the world.
Potash may be one of the best indirect China plays you can make.
Potash is used in 150 countries. Only 12 countries produce it. The US is the top potash importer, followed by China, India and Brazil.
Saskatchewan is the largest potash production region in the world, and many of the top potash producers are traded on the TSX.
Some of the companies worth investigating include:
– Potash One Inc. (TSX:KCL)
– Potash North Resource (TSX-V:PON).
– Potash Corporation of Saskatchewan Inc. (TSX:POT)
– Agrium Inc. (TSX:AGU)
– Mantra Mining Inc. (CVE:MAN)
– Raytec Metals Corp. (CVE:RAY)
– Anglo Potash Ltd. (TSX:AGP)
– Athabasca Potash Inc. (TSX:API)
– Migao Corp. (TSX: MGO)
