July 27,2009

Despite Problems, China Continues to Buy Australian

By CT Johnson
Despite the ongoing flap over detained Rio Tinto (Rio) executive Stern Hu and widespread outrage in China over the rejection of a $19.5 billion bid by Aluminum Corporation of China (Chinalco) to increase its stake in Rio, Chinese firms continue to aggressively pursue investment opportunities in Australia.  And, contrary to the expectations of some, the Australian and Chinese governments are actively supporting these deals.
 
On July 22, Western Australian Premier Colin Barnett met with the president of Sinosteel, Huang Tianwen, to encourage the Chinese steelmaker to continue pursuing deals in that state.  "I made it known that the WA state government would be supportive of Sinosteel increasing its share in other WA mining companies," Mr. Barnett said in a statement.
 
Mr. Barnett is pushing Sionsteel to increase its 6% share in Murchison Metals, an iron ore producer that is developing a new iron ore port in Okajee.  Okajee is on Australia's west coast, about 400 kilometers north of Perth. 
"I am keen for Chinese companies to be involved in the construction and development of both the port and railway infrastructure," Mr. Barnett said, adding, "The message was well received."
Not to be outdone, Chinalco Chairman Xiong Weiping, who also met with Mr. Barnett, told a news conference that the company would "conduct metals prospecting activities in Western Australia and seek investment opportunities either by independent investment or joint ventures."
Barnett seconded Xiong's upbeat mood.  "Despite what had occurred, there was still vast opportunity for both China and Western Australia to benefit from a strong relationship.  There is a lot of scope for Chinalco to become more involved in projects, especially in new mineral exploration."
On July 24, Australia's chemical industry was shaken by the news that Nufarm had been approached by China's Sinochem about a possible takeover bid.  Melbourne-based Nufarm manufactures agricultural chemicals and herbicides. 
"There is no certainty that any agreement will be reached or that an offer or proposal will be put to Nufarm shareholders," the company said in a statement. "The board will consider any offer or proposal it receives having regard to all the alternatives available to the company."  Nufarm shares rose 9% on the news, valuing the company at A$1.95 billion.
The week after the collapse of the Chinalco-Rio deal, China Minmetals bought out the assets of Australia's OZ Minerals for $1.4 billion. 
All of which points to the fact that market forces continue to outweigh China's hurt feelings and Australia's indignation.  As one of the world's largest iron ore producers, Australia can hardly ignore a country that consumes half the world's iron ore; as the owners of an economy growing at a torrid 9% per year, China can scarcely disregard Australia's vast natural resources.  Whatever difficulties may arise, the two countries are very strongly bound together.
"There is just this insatiable appetite for commodities from China and OK, they've been rebuffed by Rio, but that doesn't mean they are just going to go anywhere else," said Peter Arden of Melbourne's Ord Minnett Ltd. "They still really want to get products out of Australia."
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