Yara Calls Off Big Canadian Fertilizer Expansion

Yara has postponed the expansion of its fertilizer plant in Canada, as rising costs and a market oversupply reduce the viability of the project that analysts estimate would have cost around $2 billion.

Oslo-listed Yara, the world's biggest nitrogen fertilizer maker, said on Friday it had not given up on expanding the plant in Belle Plaine, Saskatchewan, but market conditions needed to change before it revisited the project.

Nitrogen project costs have been rising by 10 to 20% a year over the past several years in North America, as a slew of projects from chemicals to fertilizers have pushed up costs for everything from engineering to building, analysts said.

The new projects will also increase supply faster than demand for several years to come, pulling urea prices to around $320 a tonne, well below the five-year average and creating a downside risk, analysts warned.

"We are not ready to initiate a Belle Plaine expansion today, primarily due to recent increases in construction cost both in Canada and North America generally," Yara said.

"There is also a significant risk of future nitrogen over-supply in North America as new project initiatives are announced, despite deteriorating project profitability," it added.

The project was expected to add 1.3 million tons of urea and 300 kilotons of combination product NPK capacity by 2016. The Belle Plaine facility's current production capacity is 0.7 million tons of ammonia and 1.2 million tons of urea and urea ammonium nitrate.