OSLO, Norway (Reuters) — Yara has postponed the expansion of fertilizer plant in Belle Plaine, Sask.
Rising costs and an oversupplied market have reduced the viability of a project that analysts estimate would have cost $2 billion.
The Norwegian company, which is the world’s biggest nitrogen fertilizer producer, said today it had not given up on expanding the plant, but market conditions needed to change before it revisited the project.
Nitrogen project costs in North America have been rising by 10 to 20 percent a year over the past several years as a slew of projects from chemicals to fertilizers push up costs for everything from engineering to building.
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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 costs 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.”
The project was expected to add 1.3 million tonnes of urea and 300 kilotonnes of combination product NPK capacity by 2016. The Belle Plaine facility’s current production capacity is .7 million tonnes of ammonia and 1.2 million tonnes of urea and urea ammonium nitrate.
