September 13, 2000

Cost of gas shuts fertilizer plant

Ian McKinnon Financial Post CALGARY - The high cost of natural gas was a major factor in Agrium Inc.'s decision to temporarily mothball production from an ammonia plant in Alberta.

The firm shut down a 280,000 tonne fertilizer plant at Redwater, northeast of Edmonton, last week because of soaring gas prices and weak fertilizer prices.

Gas, the feedstock for ammonia, accounts for about 70% of the cost of making the fertilizer, said Jim Pendergast, an Agrium spokesman.

"It's always a combination of market prices and the cost of making ammonia," he said. "This is our least efficient plant in Alberta and it's shipping product fair distances, so we've pulled back from some of our marginal markets and shut down some of our production."

Agrium is not alone in turning off the lights. The firm estimates that 21% of North America's ammonia production capacity has been closed, either temporarily or permanently, because of tough market conditions.

In addition to being squeezed by costly feedstock, fertilizer makers have seen product prices fall because farmers have been hurt by years of low prices for wheat, corn and other agricultural commodities.

Mr. Pendergast said the fate of the closed plant will be evaluated on a monthly basis. There have been no layoffs because staff are being redeployed at a larger and new ammonia plant on the same site.

Ammonia prices have risen about 52% this year but that increase has disappeared in the face of doubling gas prices.

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-- Martin Thompson (mthom1927@aol.com), September 13, 2000