WINNIPEG, Manitoba (Reuters) - The Indian Farmers Fertiliser Co-operative (IFFCO), one of India's largest fertilizer makers, plans to build a C$1.2 billion nitrogen plant in Eastern Canada with a Canadian partner to cash in on strong North American demand.
IFFCO and La Coop federee said on Tuesday they plan to begin construction in the province of Quebec in two years, provided they can raise the remaining 45 percent of the capital cost and pending a feasibility study. They hope to start producing urea, a nitrogen-based fertilizer for crops, in 2017.
The project is the latest in a series of announced plans for additional nitrogen capacity in North America, as high crop prices support demand and with new technology unlocking the key ingredient natural gas from shale rock.
IFFCO and La Coop will face stiff competition from Norway's Yara International ASA (YAR.OL) and Canada's Agrium Inc (AGU.TO) (AGU.N), both of which plan to expand their nitrogen output.
In the near term, a surplus of nitrogen production is unlikely, considering that the United States is a net importer of the fertilizer, said Claude Lafleur, CEO of La Co-op, in an interview.
"The (crop) production in North America is increasing also, and corn needs a lot of nitrogen," Lafleur said. "At the end of the day, if everybody goes and builds new facilities, it could lead to a glut, but we don't see that in the next 10 years."
The U.S. imports more than two-thirds of its urea production, but still, if all the rumored projects became reality North America would quickly have a surplus, said David Asbridge, president of NPK Fertilizer Advisory Services.
"Even if we have three, possibly four new plants in North America in the next five years, that's going to be a little price-depressing," Asbridge said.
But U.S. Awasthi, managing director of IFFCO, said the plant will not compete in the same markets as Yara and Agrium, whose plants are in Western Canada.
"Yara and Agrium don't have their plants here (in Quebec)," he said. "I don't see any competition."
The presence of a strong local partner, in La Coop federee, makes the IFFCO project a strong bet to proceed, Awasthi said.
IFFCO operates five fertilizer production plants in India and holds interests in plants in Oman, Jordan and Senegal. It chose the Becancour, Quebec site for its access to a port, railway and pipeline for natural gas - which is a key input in nitrogen production - IFFCO said.
Urea is the most widely used fertilizer in India, especially for growing its rice, wheat, sugar cane and cotton. In 2011/12, urea consumption in India stood at 29 million tonnes compared to 28.2 million tonnnes a year earlier. India imported 7.83 million tonnes of urea in 2011/12 compared to 6.6 million the previous year.
IFFCO's priority will be to sell the urea first to Quebec buyers, then the rest of North America and finally to India, Awasthi said.
The plant would produce up to 1.2 million tonnes annually of urea, to be split evenly between IFFCO and La Coop. IFFCO will hold about one-quarter of the equity, with La Co-op holding 12 percent and the Quebec government investing 18 percent, Lafleur said.
The remaining 45 percent equity has yet to be raised, he said.
A group of farmers and other investors based in the western province of Saskatchewan, called FNA Fertilizer Limited Partnership, is also raising capital for a proposed nitrogen fertilizer plant.
La Coop federee, a agriculture-based, co-operative dating back 90 years and based in Montreal, also has investments in livestock production, meat processing and grain marketing. It plans to sell its share of urea production from the plant to farmers in Quebec and the northeastern United States through its 175 stores.
The partners plan to draw natural gas by established pipeline from Western Canada to supply the plant. A Quebec site still makes the most sense because IFFCO can easily export urea via the St. Lawrence Seaway and La Coop can sell the fertilizer to eastern farmers, Lafleur said.
(Reporting by Rod Nickel in Winnipeg, Manitoba; additional reporting by Rajendra Jadhav in Mumbai; Editing by Andrew Hay and Leslie Gevirtz)