WINNIPEG (Reuters) — A merger of two of the biggest global producers of nitrogen could result in more stable prices for the fertilizer.
As a result, the proposed deal between Yara International ASA and CF Industries Holdings Inc. would also benefit others in the industry, including Agrium Inc. and PotashCorp.
Unlike the potash and phosphate fertilizer sectors, where control of production is in the hands of a relatively small number of producers, the nitrogen industry is fragmented.
“The more consolidated an industry is, the higher and more stable are the prices of its products … and the margins that the producers earn,” said Raymond Goldie, an analyst at Salman Partners.
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However, he said there is a good chance the Yara-CF deal will not succeed for political reasons.
Norway’s Yara and Chicago-based CF announced last week that they are in talks about a merger of equals that would create a $27.5 billion global fertilizer producer.
PotashCorp would gain a stronger competitor in nitrogen sales, but consolidation would benefit the industry long-term, said Peter Prattas, an analyst at Cantor Fitzgerald.
A combined CF and Yara would still control less than 10 percent of global nitrogen production, said BMO Capital Markets analyst Joel Jackson.
In Western Canada, where each of the companies owns plants, a combination would control about half of the region’s market share, assuming there are no competition concerns, he added.
Meanwhile, Agrium chief executive officer Chuck Magro said last week that the company expected low corn prices to spur consolidation of the U.S. farm retail sector, which involves selling seed, chemicals and fertilizer directly to farmers.
He also said expansion of Agrium’s Canadian potash mine should finish in the fourth quarter.