Australia: ABB Grain may establish a trading network in Eastern Europe

ABB Grain Ltd., Australia's biggest barley exporter, may build a trading network in Eastern Europe to tap the region's rising output of the grain used by livestock breeders and brewers such as Heineken NV, Bloomberg released August 17.

"Eastern Europe is one of those areas we thought has some potential," said Michael Iwaniw, managing director of the Adelaide-based ABB Grain. The company, whose shares have more than doubled since they began publicly trading in 2002, may seek partners to buy and export grain from the region, he said.

Barley exports from the Ukraine, the second-largest shipper, have more than tripled since 2003-04, threatening Australia's position as the top supplier of the grain. Expanding into the former Soviet Union would give ABB Grain access to supplies closer to markets such as Saudi Arabia, the world's No. 1 buyer of feed barley, and North Africa.

"Eastern Europe is one of the more exciting export- orientated grain growth areas,'' Paul Jensz, agribusiness analyst with Austock Securities Ltd. said Aug. 16 from Melbourne. He rates the stock a ‘strong buy.’ “When you are consistently putting out a large amount of grain you need more updated storage and handling and marketing systems."

Shares of ABB Grain have fallen 3.3 percent this year on the Australian Stock Exchange, compared with a 5.9 percent gain on the benchmark index. They rose 3 cents, or 0.5 percent, to AU$6.77 at 1:59 p.m. Sydney time.

ABB Grain would join Cargill Inc., the largest U.S. agricultural company, and Bunge Ltd. in investing in the former Soviet Union. Russia and its neighbours Ukraine and Kazakhstan export grain from ports on the Black Sea. Overseas grain companies are being attracted to the region because of improved yields and lower supply and production costs.

Iwaniw, 59, said July 19 the company may consider a joint - venture in eastern Europe as it looks to expand the business. The Black Sea and Kazakhstan are possible locations because the company could source grain to supply to its existing customers, he said.

"Our initial studies show that going it alone in there would be too difficult,'' said Iwaniw, who is of Ukrainian descent, in an interview at the company's Adelaide headquarters. “They are growing in grain, but also have a presence there with grain traders, so you have to balance it out."

ABB Grain also may seek acquisitions in Australia, he said. ABB Grain and bigger rival AWB Ltd. have been buying businesses to diversify earnings away from reliance on crops subject to unfavorable weather conditions including drought. The company owns all the grain terminals at ports in South Australia state and plans to boost revenue by increasing mining exports.

"Mergers are no walk in the park," Iwaniw said. "We'd like to see an acquisition of some critical size that will have a certain impact on ABB,'' within five years, he said.

Iwaniw joined ABB Grain as a plant chemist more than three decades ago and began running the company 17-years ago. He has presided over the shifting of ABB Grain from a partly state-run company, to the initial trading of its shares on the exchange in 2002.

ABB Grain paid AU$670.3 million (US$512 million) for AusBulk Ltd. in 2004. The company is also spending about AU$100 million expanding the port facilities at Outer Harbor in South Australia and AU$45 million upgrading a malting plant in Perth, Western Australia.

"There are opportunities in this rationalizing of the grain industry here in Australia and overseas," Austock's Jensz said August 16. "We still have perhaps too many integrated grain marketers, storage and handlers here in Australia."

ABB Grain collects grain at its 111 silos in South Australia state, and 2 in Victoria state. It sells barley used for livestock feed and malting barley used by beer markers such as Heineken, San Miguel Corp. and Lion Nathan Ltd.

Iwaniw wants to double the amount of non-grain goods loaded through its terminals for customers including OneSteel Ltd. and BeMaX Resources NL. About 2.3 million tons of gypsum, dolomite and mineral sands are loaded at ABB Grain's facilities now, he said.

"This potential mining boom in South Australia, there's a lot of possibilities for us," Iwaniw said. "We've got the facilities there, so we are not expanding them we are just using them better."

18 August, 2006