Fertilizer maker Agrium's (AGU) Board has cleared an expansion at its Borger, TX-based nitrogen facility. The expansion will enable the company to cut its dependence on existing ammonia distribution channels and offer it greater flexibility to address changes in demand by product and region.
The expansion involves addition of a new urea production unit with a capacity of roughly 610,000 tons, of which, around 100,000 tons will be Diesel Emission Fuel (DEF) grade urea. DEF, which is used to mitigate nitrogen oxide emissions in diesel vehicles, is expected to help diversify Agrium’s end-use markets.
Agrium, which is among the prominent fertilizer companies along with Mosaic (MOS), Potash Corp. (POT) and CF Industries (CF), expects capital spending for the project to be around $720 million. The expansion will boost annual ammonia capacity for the Borger facility by roughly 145,000 tons, bringing the aggregate annual gross ammonia capacity to around 635,000 tons.
Construction work for the expansion will commence next month with completion expected in second-half 2015. During the construction phase, the Borger facility is expected to operate at normal production rates.
Agrium’s nitrogen business is a part of its Wholesale segment. It is among the largest and lowest cost producers of nitrogen globally. The expansion at the Borger facility will help the company to expand its nitrogen footprint in North America.
Profit from Agrium’s nitrogen business tumbled roughly 56% year over year in the most recent quarter on lower pricing for nitrogen products and reduced sales volumes due to plant outages during the quarter and a shorter fall application season in the U.S.
While Agrium expects global nitrogen demand to rise year over year in 2014, it sees a decline in demand in North America due to reduced corn acreage. Nevertheless, Agrium and other nitrogen producers in North America should benefit from relatively lower natural gas prices driven by shale gas production.
Agrium stands to gain from favorable crop prices and overall strong fundamentals for the agriculture and crop input market. The company is expected to see healthy demand for crop protection products in 2014.
However, Agrium’s Wholesale division remains under pressure with declining sales and profits, partly due to lower pricing. The pricing environment is expected to remain soft in the wholesale business in the near future.