With cash to burn, China may consider strategic synfuel position
By: Matthew Hill
Published: 4 Jul 08 - 0:00
engineeringnews.co.za
As the Chinese economy roars ever onward, resource companies are well poised to increasingly benefit, because of growing demand for their products, but the immense Asian country is also embarking on what will likely turn out to be the world’s biggest-ever shopping spree.
An expert on China’s economy reckons that the country has cash to burn, and that certain blue-chip South African firms might find themselves in its sights.
Asked what JSE-quoted stock might next attract Chinese investment, Thebe Securities international economist Lih-Wen Chu said it was a tough call, but that his personal prediction was coal-to-liquids producer Sasol.
He believed that there was good reason for the Asian powerhouse to buy into Sasol, but that if this did materialise, it would only buy a relatively small chunk of 5% to 10%.
China boasts one of the world’s biggest coal resources, at over one-trillion tons, and the fuel accounts for some 70% of the country’s energy consumption. It is also the world’s biggest coal consumer and producer, with output reaching an esti- mated 2,5-billion tons last year.
Couple that information with peaking oil prices frothing around record highs, and it certainly could make sense for China to cosy up to the world’s biggest maker of liquid fuels from coal.
Sasol spokesperson Johann van Rheede said that he was not aware of any Chinese interest in acquiring a stake in Sasol.
He did, however, draw attention to the the fact that Sasol had entered into equity joint ventures in its foreign projects.
Sasol had already signed an agreement with State-owned Shenhua Group to build two 80 000-barrels-a-day liquid fuel plants in China, which would use its Fischer-Tropsch technology, developed by the Germans during the Second World War.
The feasibility studies on these plants were set for com- pletion by the end of next year, with first product expected by 2016.
However, another analyst, who asked to remain unnamed, was not convinced that it would make sense for China to acquire a stake in Sasol.
It was his belief that it might be rational for China to gain control, but that Sasol was strategically key to the South African government, which held over one-quarter of the company, through its investment vehicles – the Industrial Development Corporation and the Public Investment Corporation.
“They would have to convince the government first,” the analyst said.
A majority stake in the liquid- fuels producer could mean a quicker roll-out of its plants in China, which had been a source of frustration for government thus far, he noted.
Still, he said he “wouldn’t be surprised” if China was to buy into Sasol.
Nedcor Securities resources analyst Mohamed Kharva said that there were other smaller companies for China to partner with, which had similar technologies, albeit not nearly as established as the coal-to-liquids king.
Already, Shenhua would commission a smaller 20 000-barrel-a-day facility this year.
So, while he said it was possible that China might want an equity stake in Sasol, he was “not too convinced this would happen in the next year or two”. “It wouldn’t make sense for them to play their hand so early.”
Meanwhile, Chu said that aluminium producer Chinalco’s indication last month that it may take up a stake in resources giant BHP Billiton was “just an indication” of things to come.
He pointed out that even if China were to use 10% of its $200-billion sovereign wealth fund to buy into the resources sector, that would equate to $20-billion – by no means a small amount. And this was just a drop in the ocean of the $1,7-trillion that the country held in foreign reserves.
Minority stakes in Anglo American and BHP Billiton would be “primary targets” for China, as such investments would offer a hedge against surging commodity prices, he noted.
‘Just Beginning’
Chu echoed a statement that another expert on China made earlier in June, that what the world was witnessing was just the beginning of the country’s emergence.
The Beijing Axis founder and MD Kobus van der Wath said on June 10 that what the world had seen in Chinese foreign direct investment was “just the beginning”, and that “phenomenal growth” should be expected.
Speaking in a telephone interview, Chu fired off a list of mind-boggling stati- stics that have become synonymous with Chinese economic growth:
97 massive airports in the country by 2015, a highway from Beijing to Hong Kong, ports and railways, and the list rolls on.
But Chu highlighted that infrastructure growth, signifi-cant as it might be, was not nearly the whole story.
With a massive 1,4-million people migrating to Chinese cities every month, the urban population was ballooning.
Currently at 43%, it was expected to reach 50% by 2015, he stated.
To ensure housing for this flood of new city dwellers, China was planning 20 new inland cities before 2020.
What this meant was a whole new army of consumers, which would fundamentally change the global consumer market.
Chu used a simple example to illustrate the gravity of the situation – a pint of beer.
If one out of one hundred of the Chinese population were to enjoy the age-old beverage, that makes 1,3-million drinkers.
Now, if each of these people had to throw back only two pints of their favourite brew a day, they would be drinking 2,6-million beers every 24 hours.
“Times that by 365, and it is very significant,” Chu stated, sug- gesting SABMiller as another stock that could stand to benefit in a big way from China’s boom.
Edited by: Martin Zhuwakinyu |
