Potash vs. BHP: The Fertilizer War From A to Z

China

[Feeding the billions.]

The world's largest consumer of potash is, not surprisingly, its most populous nation.

China used nearly 8 million metric tons of the stuff in 2009 (though that's down from a peak of 11 million before the financial crisis). Between half and two-thirds of that sum was imported, a circumstance that has contributed to a certain angst among government officials in the country, at least judging by their public comments lately. The jist: they'd prefer to have more control over a substance so crucial to China's food supply.

(Despite its angst, China is the sixth-largest potash producer in the world, nearly double the size of the U.S. The other great potash nations are, in descending order of size: Canada, Belarus, Russia, Germany and Isreal. Something near 90% of the world's potash comes from this handful of countries. Canada is the granddaddy of them all, accounting for a third of all the potash that's produced on earth.)

What potash deposits exist in China won't be enough, it's widely believed, to meet the growing demand for fertilizers in the Chinese farm belts. On the one hand, that's good for players elsewhere in the world, since that very growth will mean bigger profits. (Indeed, it's the chief reason that BHP is aiming to acquire the world's largest owner of these long-lived assets.)

On the other hand, the relative paucity of potash in China has induced fertilizer companies there to look overseas for acquisitions. There have been rumblings this year about an acquisition in Belarus -- home to the second-largest potash deposits on earth, behind Saskatchewan. And, of course, several Chinese names have been cited as potential white knights for Potash Corp.

Inside BHP, the threat of a Chinese interloper doesn't cause much alarm. According to one person there, the thinking is that a Chinese company taking any large stake in Potash would face huge regulatory hurdles, not least of all from U.S. authorities. Why? Half of the potash that Potash mines goes into the fields of the American bread basket.