Hydro to stay in fertiliser

By Roger Chesher

FERTILISER is still part of Hydros future, judging by a stragtegy announcement made yesterday by the companys president.

But the plan set out by presdient and chief exectuive Egil Myklebust has still given rise to rumour and speculation within the fertiliser industry.

He has based his strategy on global growth in three core business areas: oil and energy; light metals; and Agri.

But, to meet global opportunities, the company must first address the challenges in profitability and structure in European operations.

Fundamental changes are needed, according to Mr Myklebust, and they will be painful but positive, but has not spelled out what those changes may be.

However, with Agri part of the strategy, the prospect of Hydro divesting its fertiliser interests has now disappeared.

In the same message, Thorleif Enger, who is responsible for Hydros global fertiliser business, said: “In a cyclical industry like ours, there are major opportunities -when prices are low- to create value through acquisitions and alliances”.

Perhaps it was this one comment, taken with Kemiras comments reported yesterday, which gave rise to speculation throughout the trade that “Hydro are about to acquire Kemira.”

Mr Enger was, however, talking on a global scale and was first to point out that his own organisation is not immune from very poor performance in Europe. Investments in Europe, he noted, will have to wait.

So the message is that the current gross overcapacity of fertiliser manufacture in Europe must be sorted out, and that can only be done by the producers themselves.

This amounts to some 3 million tonnes of excess nitrogen production which, when elaborated into various concentrations of fertilisers, amounts to some 8-10m tonnes of actual product.

But Kemira and Hydro are not the only players.

Terra Industries, having posted a US$16.9m loss for the 1999 third quarter also have a vested interest in resolving the problem, but even though their UK interests are reputedly for sale they stand no chance of recovering the sum they paid for the purchase of ICI.

With ammonia plants at Severnside and Billingham they are very much part of the UK equation, but relatively small in Europe.

Kemiras site at Ince is the third UK ammonia site and like Billingham is considered efficient, but whilst two ammonia sites in the UK make sense, three is one too many.

The final player who could well emerge in the mix is GP. Grande-Paroissse SA operates in France and Holland producing ammonia, ammonium nitrate, urea and NPKs and this company is also seeking change.

A similar strategy statement from GP is expected imminently.

So, the big players in the world seek to retain fertiliser as core business after resolving the significant problems of Europe.

The big players in Europe simply cannot afford to maintain fertiliser as a core business but do not necessarily wish to exit the market altogether; one cannot base more than 25% of shareholders interests on such a cyclical industry.

The smaller players in Europe would probably be quite happy to exit the market if the price were right.

Many within the industry are now left wondering what will happen next.

Old-fashioned takeovers or acquisitions seem unlikely. The money isnt there and the price isnt right.

Joint ventures and closer business relationships or partnerships are much more likely with excess capacity and less efficient plants being closed down.

With the opening salvoes nearly over (we have yet to hear from GP) and the shareholders now primed, fuller plans should emerge between now and Christmas.

If the fertiliser industry is to survive the result must be a reduction of capacity followed by an increase in price and a return to profitability.

Agriculture has enjoyed rock bottom fertiliser prices for several years now and one could argue that we are only about to see prices return to normal. Remember nitrogen was at £115/t in 1990.

There is plenty in store at present prices, so perhaps the message is to make the most of it.

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