Shares in CF Industries, and other nitrogen groups dropped, after the company revealed plans to raise its capacity more than investors had expected, stoking concerns of excess supplies in North America.

The US-based group said that it was to spend $3.8bn on expanding two plants, one in Iowa, a major farming state, and the other in Louisiana, a southern state which is a major producer of natural gas, a major raw material for nitrogen fertilizers.

The investment will lift production of ammonia, the intermediate building block for nitrogen nutrients, by 2.1m short tons, with capacity for urea-based chemicals, the final products, raised by some 4.4m short tons.

The expansion "allow the company to take further advantage" of North America's competitively-priced supplies of gas, which have been boosted by the expansion of shale gas extraction.

Until 2009, declining supplies, and high prices, of gas from traditional supplies had forced consolidation within the region's nitrogen industry.

Rising costs

However, the move unsettled some investors, in part because of the higher breakeven cost from the extra capacity than implied by CF comments three months ago, when it outlined plans for expansion.

Then, it envisaged spending $2bn on producing an extra 1m tonnes of ammonia, and 3.5m tonnes of urea-based products.

"It appears at this point that CF's expansion capex per tonne increased from about $600 to over $800, based on capex divided by new product tonnes," John Chu at broker AltaCorp Capital said.

Furthermore, the increase stoked concerns over the extent of the rush to exploit cheap gas to fulfil the needs of a region which is reliant on imports, with the US buying in half of its supplies last year.

While Agrium, the Canadian fertilizer giant, has signalled that North America could accommodate some 13m tonnes a year in new production capacity, 15m tonnes was on the drawing board even before CF raised its target, according to AltaCorp calculations.

Lengthy process

Investors, and rival fertilizer groups, have pinned hopes of avoiding a drop in world prices from a jump in North American capacity in that many of projects planned will be delayed, or scrapped.

Norway's Yara International, the world's biggest nitrogen group, said last month that "most of these projects are at an early stage, with significant uncertainty linked to financing and permitting hurdles.

"The normal lead time for a new world-scale urea project is five years from concept to completion, with four-year implementation possible for brownfield projects but typically longer lead times for greenfield concepts."

CF said its fresh capacity would start coming onstream late in 2015.

'Projections too low?'

CF's raised cost-per-ton estimates also raised questions over the figures being used to justify some of the new North American plants.

The group's sums "make us wonder if current cost projections from some of the non-industry players may be too low and that higher costs will need to be factored in going forward", Mr Chu said.

Nonetheless, shares in CF stood 4.4% lower at $201.60 in New York in afternoon deals.

Yara stock closed down 3.2% at NOK258.50 in Oslo.