According to regional analysts at Capital Worldwide, China will boost spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after commodity prices slumped.
Recent evidence of Capital Worldwide’s latest assertion on China includes state-owned Yanzhou Coal Mining Co., who last week agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), a day after Sinochem Corp., China’s biggest chemicals trader, offered to buy Emerald Energy Plc for 532 million pounds ($881 million) to gain oil fields in Syria and Colombia.
China National Petroleum Corp.’s plan to buy Repsol YPF SA’s Argentine unit may push Chinese purchases of overseas commodity assets to $43 billion this year, a 48 percent increase on 2008, according to Capital Worldwide analysis findings.
A Capital Worldwide analyst statement last week took the view that a fundamental lack of core resources such as nickel, oil and copper has compelled China to go on a buying spree in preparation for a rainy day to come, and that low commodity prices have attracted them into the market for such assets now.
Bids for resources by China, whose $2.1 trillion in currency reserves are the world’s largest, have been met with opposition in the U.S. and Australia. Neither concern over its growing influence nor the arrest of four Rio executives in Shanghai have stopped Chinese companies from buying assets abroad as the nation’s 4 trillion yuan ($585 billion) economic stimulus spurs demand. Furthermore, they anticipate seeing a long-term trend of larger and bolder deals from China.
The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36 percent last year, the biggest annual decline since at least 1957. The measure has gained 15 percent this year on signs that the recession may be ending.
According to data in the Capital Worldwide report, Chinese energy companies have spent at least $13 billion on overseas assets since December as they take advantage of lower valuations caused by the slowdown.
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