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Nitrogen group CF inks massive supply deal, as sector consolidates

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Agribusiness CHS is scrapping plans to construct its own nitrogen fertilizer facility in the US, as it instead inks a multi-billion dollar deal to secure its supply from CF Industries.

The agreement marks the latest in a string of high-value deals in the rapidly consolidating nitrogen sector.

US based agribusiness CHS will invest $2.8bn in a subsidiary of fertilizer producer CF, in order to secure nitrogen fertilizer supplies.

Secure supply

CHS will make a minority equity investment in CF Nitrogen, a wholly-owned subsidiary of CF Industries, in return for a share of the profits.

The deal will include a supply agreement entitling CHS to purchase up to 1.1m tonnes of urea and 0.6m tonnes of UAN (a solution of ammonium and nitrate in water) from CF annually, accounting for 9% of the nitrogen giant's total capacity.

CF Nitrogen currently operates 3 plants in the US, and CF will transfer a fourth facility to the unit prior to the completion of the deal. CF will continue to manage and operate these facilities.

North Dakota plan scrapped

CHS, the largest farmer owned agribusiness cooperative in the United States, announced that it would not be going ahead with the construction of a $3bn nitrogen fertilizer plant in North Dakota, with a planned capacity of 2,400 tonnes of ammonia a day.

"This positions CHS and our owners for long-term dependable fertilizer supply, supply chain efficiency and economic value," said Carl Casale, president and chief executive of CHS.

"In addition, the ability to source product from CF Nitrogen production facilities under our supply agreement benefits our owners and customers through strategically positioned access to essential fertilizer products," he added.

Shopping spree

CF has been on a buying spree lately, as the nitrogen industry goes through a phase of consolidation.

CF last week agreed a deal to control of the Europe and North American assets of Dutch nitrogen group OCI, in a $6bn deal. The group will hold a majority stake in the newly created holding company which will be domiciled in the UK.

The deal will see CF benefit from the UK's low rate of corporation tax, which is scheduled to be reduced to 18% by 2020.

OCI will hold a minority stake in the newly created company, while retaining full ownership of its North African facilities.

Last month CF gained control of GrowHow, the UK's biggest fertilizer producer, from Norwegian nitrogen giant Yara for $580m.

There was more consolidation in the North American nitrogen market as CVR Partners merged with Rentech Nitrogen in a $553m deal earlier this week.

CF Industries shares traded up 2.8% in early afternoon deals in New York, at $60.16 a share. CHS shares traded up 0.3% at $30.30 a share.


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