Olam CEO sees more consolidation in commodities sector

JAKARTA, April 2 Wed Apr 2, 2014 3:28am EDT

JAKARTA, April 2 (Reuters) - The global commodities industry is set to see further consolidation, with the metals sector ripe for acquisitions after a fall in prices, the chief executive of Olam International Ltd told Reuters.

The industry has seen a string of recent acquisitions, as investors look for bargains after slowing demand in countries like China and India pushed down prices.

China's largest grain trader COFCO Corp agreed to pay $1.5 billion to buy a 51 percent stake in Noble Group Ltd's agribusiness, the firms said on Wednesday. The news came just days after Cargill and Brazil's Copersucar announced plans last week to create the world's biggest sugar trader through a 50-50 joint venture.

Last month, a group led by Singapore state investor Temasek Holdings offered to pay $2.1 billion for the remaining shares of Olam that they did not already own.

"Consolidation in the soft commodities space has been a trend for some time and it will continue to remain a trend," Olam CEO Sunny Verghese said on the sidelines of a conference.

"It is an attractive sector with good returns in the long term, and there is a race intensifying for resources," he said, adding that metals could be next to see more consolidation.

While some of the big commodities firms are cutting capital expenditure, several funds may feel that now is a good time to acquire metal assets on expectation prices will pick up, Verghese said.

U.S. private equity firm Carlyle Group, along with other investors, agreed last month to acquire a majority stake in metals trader Traxys Group, even as large banks are scaling back on physical commodities trading amid increasing government scrutiny and dwindling margins.

However, investing in the commodities industry may require some patience partly due to the long gestation of assets such as palm and coffee, and sovereign wealth funds may fit the bill due to their longer-term horizons, Verghese said.

"A lot of the sovereign wealth funds are long term in terms of their investment and holding period. So they have become more natural investors to this asset class, than the traditional capital market players." (Reporting by Michael Taylor; Writing by Eveline Danubrata in SINGAPORE; Editing by Ed Davies)

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