Yara International ASA, the world’s biggest producer of nitrogen fertilizer, is eyeing construction of a new $2-billion plant in Canada, among other options, as it looks to expand its production 40 per cent by 2016.
Oslo-based Yara intends to add eight million tonnes to its global fertilizer production capacity, as projected population growth boosts demand for food and crop production, Bartolomeo Pescio, head of the company’s North America unit, said in an interview with Reuters Feb. 23.
“If conditions are favourable, there might be scope for a global-scale plant in Canada,” Pescio, Yara’s North America business unit manager, said on the sidelines of the Canadian Association of Agri-Retailers convention in Winnipeg.
Building a new facility on the site of Yara’s existing fertilizer plant at Belle Plaine, Saskatchewan, is one of the options, but the company is considering a variety of factors, such as logistics and possible government support, he said.
The new plant would cost about $2 billion and produce 1.2 million to 1.3 million tonnes of fertilizer annually.
“We are looking at Belle Plaine as a possibility, but also elsewhere in North America,” Pescio said. “We are looking all over the world.”
Yara, listed on the Oslo Stock Exchange, expects to realize about two million tonnes of the additional eight-million-tonne expansion through improvements at existing sites. It currently produces about 20 million tonnes worldwide.
Building a new plant takes at least four years, meaning the company will have to decide on a location soon to meet its 2016 target. Adding eight million tonnes of capacity would cost roughly $10 billion to $15 billion and could include joint ventures, Pescio said.
Cheap and abundant natural gas in North America, due largely to advances in drilling technology, has boosted the profitability of producing nitrogen fertilizer. Natural gas is one of the key building blocks for the crop nutrient, which farmers add to soil to maximize crop yields.
The company has not decided if it favours long-term agreements or the spot market to secure more natural gas, Pescio said.
It is also watching to see if U.S. regulators will approve export applications from natural gas producers. New export markets would add demand and ease the oversupply of natural gas, which Pescio said would in turn raise the commodity’s price and squeeze Yara’s margins.
Still, Yara will stay “in growth mode,” even if natural gas prices recover, because of attractive long-term fundamentals, he said.
Agricultural production must double by 2050 to feed a projected global population of nine billion, requiring a massive increase in crop yields since there will likely be only a small increase in arable land, Pescio said.
U.S. farmers have held off on fertilizer purchases ahead of spring planting this year in a standoff with producers over high prices.
That situation will likely result in bottlenecks in moving fertilizer from producers to farmers ahead of planting and during the growing season, Pescio said, as farmers limit purchases and retailers avoid holding too much stock.
“Everyone will try to buy as much as needed and not anything more. And prices might be, because of the bottleneck, driven higher.”
Farmers are expected to sow more corn, a fertilizer-intensive crop, to cash in on attractive prices with U.S. corn inventories at their lowest levels since the mid-1990s.
“(Purchasing delays) are bringing such volatility that it will be harming even the farmers eventually,” Pescio said. “Over time, the industry will have to learn that layering purchases and spreading the risk is the only way to deal with price volatility.”
Soil conditions are dry in the Midwest and Northern Plains, raising early concerns about how well crops will germinate and develop this year. That’s not likely to curb farmers’ appetite for buying fertilizer, he said.