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US fertilizer makers put expansion plans on hold

August 13, 2013
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Before the summer of 2012 many U.S. fertilizer producers announced plans for capacity expansions, which raised the hopes of the natural gas industry. The bullish mood among ammonia- and nitrogen-based fertilizer manufacturers was driven by lower gas prices and the belief that global demand for their products would grow. But the 2012 drought led to uncertainty about weather conditions and projects started being abandoned or put on hold. According to an analysis by Bentek Energy, a unit of energy news provider Platts, growth in the U.S. fertilizer industry seems to be slowing down and fewer new projects will be announced as sector players grapple with market difficulties and higher construction costs.

Darrell Proctor, an analyst at Bentek, said that any new announcements in the Southeast/Gulf region were likely to come from companies targeting global exports. If the news comes from the Midcontinent, it would be an indication of rising regional demand and a growing preference for domestically produced fertilizer, Proctor added.

Among the biggest capacity expansion projects is the $2.1-billion extension to CF Industries' complex in Donaldsonville, La. The biggest U.S. maker of nitrogen-based fertilizers aims to build another plant on the site by 2016. The facility would be capable of producing some 1.27 million mt/year of ammonia. CF also plans to invest $1.7 billion in expanding its ammonia capacity at Port Neal, Iowa, adding 849,000 mt/year. The company announced last week that construction work on the two sites is expected to begin within weeks following the receipt of air permits.

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Stephen Wilson, chairman of CF, said that his company was proud to play a leading role in the North American capacity expansion. Although some rivals have put such plans on indefinite hold, none has given as a reason an anticipated lack of product demand. However, Wilson stated further that the U.S. was expected to remain a net importer of nitrogen-based fertilizers and that was unlikely to change in the foreseeable future.

While CF is pushing ahead with its projects, Agrium has put on hold engineering work on a Midwest greenfield project worth almost $3 billion. It is scheduled to go live in 2017, delivering capacity of 1.8 million mt/year. Agrium's decision was prompted by climbing construction costs and the company said it would concentrate on finding a strategic partner and securing a gas supply contract for the project. However, Agrium said last week that it remained engaged in exploratory work over a proposed expansion at its existing facility in Borger, Texas. Should that plan be brought to fruition, it would expand ammonia capacity by about 120,000 mt/year.

Another fertilizer maker that has had a change of heart is Yara. The Norwegian-owned enterprise announced in June that it was freezing expansion plans for its complex in Belle Plaine, Saskatchewan. The idea was to erect a second plant on the site, adding 700,000 mt/year of capacity. Yara gave as reason for its decision the recent increase in construction costs in Canada and North America. According to chief executive Jorgen Ole Haslestad, there is also the danger of future North American oversupply of nitrogen-based fertilizers given the number of new projects announced. Still, Yara has not completely given up on an expansion at Belle Plaine and would revisit the plan when construction costs go down, Haslestad added.

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