29 October 1999

Joint venture on cards as Kemira plans a sell-off

By Robert Harris

CHEMICALS giant Kemira is looking to sell or merge its agricultural fertiliser business, a move which would kick-start the long-awaited restructuring of the European fertiliser industry.

With Hydro Agri, Europes biggest fertiliser business ahead of Kemira, expected to make a similar announcement soon, a joint venture between the two companies looks increasingly likely, say observers.

In a statement this week, Kemira said it will focus on core businesses in an effort to boost profits and reduce income volatility. These include pulp and paper chemicals, water treatment chemicals, paints and coatings.

Joint ventures or "ownership structure arrangements", which might include a take-over or sale, are being investigated for other non-core sectors, including the nitrogen fertiliser business.

While Kemira says speciality fertilisers remain of interest, it is thought that NPK compounds made in the UK will not fall into that category. These are made at Ince in Cheshire, the same site as straight N products, and the two could not be split.

"Over the past 12 months we have gone through another round of cost cutting, and we have now taken out all the costs we can," says Dick Davies, Kemiras UK agricultural business director.

"But there is 25% over-capacity in western Europe. We cannot alone solve the problem of making our business sustainable. Soon, the whole of the European fertiliser industry could be facing a restructure."

Moves are already afoot. Although no one from Hydro Agri was available for comment, the company is expected to say something very similar, says consultant Roger Chesher of the Bridgewater Parnership.

"While Hydro has said it has no plans to leave the agricultural sector, it has said that major adjustments are needed in its fertiliser activities. Speculation is rife that joint ventures between the two, and perhaps Terra as well, will follow."

Terras marketing manager, Stuart Beer maintains the company is not interested. "As far as I am aware, we are not looking to take on any plants. Perhaps if they took all the cost out first, it might be more attractive."

Nitrogen manufacturers have been making heavy losses. On-farm values remain below £90/t, as last year, a 13-year low, and about £10/t below break-even.

Kemiras latest retail price shows little increase, putting straight N at £90/t delivered January-March, with payment in April. 20-10-10 will cost £17/t more. Both products will be £3/t cheaper before the New Year.

The slow UK market and increasing pressure on stocks saw Terra cut ammonium nitrate throughput by 40% at its Billingham and Severnside plants this week. Managing director, Paul Thompson, said greater than expected pressure brought about by the strong £ had slowed exports.

Joint ventures or similar could turn the market around, taking excess out of the system and allowing makers to raise prices. "They will be looking for about £120/t to make a modest return on capital," says Mr Chesher.

But it is unlikely to happen next autumn, he adds. "Farmers may think they are getting stuffed, but prices really are suicidal at the moment. And higher prices will attract imports, putting a base in the market." &#42