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China firms continue global hunt for lucrative commodities

(China Daily)
Updated: 2010-02-03 08:03
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SHANGHAI: China, the world's largest metal consumer, will add to last year's record $32 billion spending on resource acquisitions as demand for iron ore, copper and oil soars with the fastest economic growth since 2007.

Chinese companies will hunt for iron ore, coal, oil, copper and gold assets, said Jing Ulrich, the chairwoman of China equities and commodities at JPMorgan Chase & Co in Hong Kong.

China Minmetals Corp and China Petrochemical Corp led an acquisition spree last year, as companies snapped up zinc mines in Australia, oil reserves in Nigeria, and gold deposits in the Philippines. Owning resources will give China more control over pricing and reduce its dependence on suppliers including BHP Billiton Ltd, the world's largest mining company.

"There are still many opportunities for mergers and acquisitions overseas this year, even though asset valuations would be much higher," Huang Dongmei, deputy general manager at Minmetals Exploration and Development Co, a unit of China Minmetals, said by phone from Beijing. "We're considering several projects," Huang said, without giving details.

Aluminum Corp of China, the nation's largest maker of the metal, will "utilize all its resources and energy" to speed up acquisitions this year, Chairman Xiong Weiping told staff in a speech posted on its website on Jan 25.

The State-owned company was rebuffed in June by Rio Tinto Group from investing $19.5 billion in the world's second-biggest iron ore supplier amid objections from shareholders and Australian politicians. The Beijing-based company is London-based Rio's largest shareholder.

Record imports

China's imports of iron ore, copper and oil leapt to records in 2009, as demand from carmakers and builders including Volkswagen AG and China Vanke Co expanded.

The economy grew 10.7 percent in the fourth quarter, the fastest pace since 2007, on the $586 billion stimulus spending and record lending.

"You'll have a lot more Beijings and Shanghais coming up over the next 20 and 30 years and to feed all of that, the amount of iron and steel is huge," said Eric Lilford, head of Australia mining at Deloitte Corporate Finance in Perth. Chinese demand "has been relatively strong even during the global financial crisis and it's stronger now."

China's refined copper demand may jump 14.8 percent to 6.81 million metric tons this year, said Qu Yi, a Beijing-based analyst at CRU International Ltd. Iron ore imports may rise 27 percent to 800 million tons by 2012, up from the record last year, as steel consumption surges, researcher said.

Before the global recession last year depressed asset prices, China's investments in overseas resource and energy companies rose every year but one from just $578 million in 2004, according to Bloomberg data.

Yanzhou Coal Mining Co, a unit of China's fourth-largest coal producer, bought Australia's Felix Resources Ltd for A$3.5 billion ($3.1 billion). China Petrochemical purchased Addax Petroleum Corp for C$8.3 billion ($7.8 billion) last year to add oil reserves.

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Minmetals, the nation's largest metals trader, agreed in June to pay $1.4 billion for most of the assets of OZ Minerals Ltd, then the world's second-largest zinc producer.

"The total size of such deals is expected to reach a new record," said Li Luhui, a Beijing-based analyst with Zero2IPO, a research company which counts China's National Council for Social Security Fund as a client. "The Chinese government will continue to support large State-owned companies with related policies and capital to go overseas."

China may focus on energy targets in South America and Central Asia, and metals in Africa this year, Li said. Smaller companies may struggle to raise funds as the government seeks to curb lending, Li said.

China's $300 billion sovereign wealth fund, which pumped about $10 billion into commodity-related companies in the second half of 2009, is in "early talks" for investments in Brazil, the world's second-biggest iron ore exporter, and Mexico, Chairman Lou Jiwei said on Jan 20.

Bloomberg News