LONDON, May 30 (Reuters) - Fertiliser prices have risen by as much as threefold over the last year and look set to remain strong as the world's rising population fuels an ever-expanding appetite for food, industry sources say.
"All fertiliser companies are showing good profits at the moment -- some would argue extraordinary profits," said Ken Bowler, marketing manager at GrowHow UK Ltd, Britain's last remaining producer of nitrogen fertiliser.
"I would probably think the next five years is a good time to be in this business," he added, noting stock market prices for leading fertiliser companies reflected that confidence.
GrowHow is a joint venture between Norway's Yara International (YAR.OL: Quote, Profile, Research) and U.S.-based Terra Industries (TRA.N: Quote, Profile, Research). Shares in both companies have risen dramatically with Terra peaking in January at $53.48, after trading as low as $5.45 two years earlier. Terra shares were trading on Thursday at $41.58.
Bowler said new fertiliser plants were planned to meet growing demand, particularly in areas with rising populations and low energy costs such as China and South America.
No new plants are planned in Britain although GrowHow is investing 15 million pounds ($29.55 million) to boost output and improve environmental emissions from its plant in northeast England.
"It is forecast that around 2011/2012 ... supply will exceed demand at that point with the new investments. In the run-up you may start to see prices come off," he said.
Britain uses about 3.7 million tonnes of fertilisers a year, including around 2.0 million tonnes of nitrogen. The balance includes nitrogen compounds as well as phosphate, potash and sulphur products.
Nitrogen manufacture is energy intensive so profits have been eroded by high prices for natural gas, which accounts for about 70 to 80 percent of production costs.
"The big winners at the moment are those producing potash and phosphates," Bowler said, adding prices for producers in Canada, the United States, Russia and North Africa had risen three-fold during the last 12 months.
ENVIRONMENTAL CHALLENGES
The industry faces environmental challenges, including pressure to reduce related emissions of nitrous oxide, a major greenhouse gas.
"Some plants have abatement technology already, others have investment programmes planted," said Jane Salter, head of environmental policy for the Agricultural Industries Confederation, a U.K. trade association.
"There will be investments over the next 20 years to deal with this aspect which will improve the carbon footprint of fertilisers considerably," she added.
Salter said the European fertiliser industry was taking part in consultations to set a target for reducing nitrous oxide emissions over a still undetermined time period.
"The release of nitrous oxide from agriculture and methane in livestock is inherent in the production of food. The best we can do is get the emissions per unit of production down," Salter said.
Methane produced by livestock as they digest food is also a potent greenhouse gas.
The industry's emissions are set to become more of a focus with the expansion of U.K. biofuels production.
Britain's government plans to link support for the biofuels sector to carbon savings, providing a significant incentive for producers to use crops grown with fertilisers which had been manufactured with lower emissions of greenhouse gases.
"The whole area of abatement, carbon trading and nitrous oxide emissions is very much going up the agenda. We are talking to government about that at the moment," Bowler said.
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