Japanese trading house Sumitomo Corphas held discussions with China's New Hope Group about distributing natural gas to Chinese cities, it has been revealed.

But no agreement was cemented - for the time being.

"We have been in touch with New Hope on natural gas cooperation," Lu Dagang, assistant to the general manager of Sumitomo Corp (China) Holding, told China Daily.

"But we haven't entered into any agreement."

There have been reports that New Hope, Sumitomo and Hong Kong-based China Gas have signed agreements to establish a joint venture to distribute natural gas to a batch of Chinese cities.

However, analysts say Sumitomo's move signals its rekindled interest in Chinese energy distribution market, and is a fresh attempt at consolidating a local presence.

The talks came at a time when a number of non-state firms were competing to snare distribution contracts for Chinese cities.

Foreign and private investors were allowed access to public utilities such as water, gas and electricity in late 2002. Exploration rights for natural gas are still under State control.

Because of the deregulation, Xinao Gas Holdings, Wah Sang Gas Holdings and Hong Kong China Gas are all working to cash in on the market.

It is reported that China's New Hope Group, a flagship private enterprise, has signed contracts to be the exclusive supplier of natural gas to 10 Chinese cities for 30 years. The cities are in the provinces of Hubei, Anhui, Sichuan, Jiangsu and Gansu.

"Competition in the natural gas distribution market will increase," said a Guotai & Jun'an Securities analyst who did not want to be named.

More non-state firms will enter the sector, which, although requires large investment to produce steady and fat returns, he added.

In another development, Sumitomo is ramping up its efforts to become a bigger player in China's chemicals market.

The company plans to set up a joint venture fertilizer firm in east China's Shandong Province in the next few days.

Summit Fertilizer (Qingdao) Co Ltd will be a marriage between Sumitomo and Qingdao Soda Ash Industrial Co Ltd. It will be able to produce 200,000 tons of fertilizer annually.

Soda Ash will hold a 60 percent stake.

Construction of production plants will start in August, aiming for production in March.

The new project will help Sumitomo cash in on the Chinese fertilizer market, which is crying out for high-quality products.

China is the world's largest fertilizer consumer, while Shandong is one of China's major agricultural bases that produces cash crops such as vegetables and fruits.

Apart from chemicals, Sumitomo is also investigating the steel, telecommunications, machinery and information technology sectors.

"Sumitomo is investing in a number of sectors, chasing a diversified and balanced development in China," Liu said.

(China Daily July 26, 2004)