CF Fertilisers UK Ltd., a subsidiary of CF Industries Holdings Inc., Deerfield, Ill., on June 8 announced proposals to restructure its operations in the U.K.

The company proposes to focus its U.K. manufacturing operations exclusively at the Billingham manufacturing facility in Teesside, Northeast England, where it produces ammonia, nitric acid, ammonium nitrate (AN), and carbon dioxide (CO2), and to permanently close the Ince manufacturing facility near Chester.

The Ince plant, which has capacity to produce ammonia, nitric acid, AN, and NS and NPKs, has been closed since September 2021 due to high natural gas prices. CF Fertilisers said the closure could result in up to 283 redundancies at the site.

The restructuring follows a strategic review of CF Fertilisers’ U.K. business – recently completed – that the company said confirmed additional challenges facing the business, and is proposed in order to secure long-term profitability and sustainability and enable the company to continue to supply fertilizer, CO2, and other industrial products to its U.K. customers.

CF Fertilisers said its AN sales volumes to U.K. customers have fallen by nearly 30% since the 2017-18 season due to intense competition from lower-cost imports.

“As a result, when both Billingham and Ince are producing AN even at minimum levels, the company has not been able to profitably sell the entire volumes domestically over the last four years,” the company said.

“This has caused CF Fertilisers UK to increasingly turn to exporting at unsustainably low margins in order to continue to operate both facilities,” it said.

“The U.K. exports some 150,000-200,000 mt of AN annually to nearby European destinations,” said Green Markets Fertilizer Analyst Alexis Maxwell.

“In contrast, the U.K. imports some 300,000 mt of AN annually. That is low-cost AN that comes primarily from Lithuania and Poland and displaces U.K. production,” she said.

As carbon costs continue to increase substantially in the U.K., CF Fertilisers expects that its production will be placed at an even larger competitive disadvantage against imports without a carbon border adjustment mechanism to ensure a level playing field.

The company also expects global nitrogen industry conditions to remain challenging for nitrogen producers in the U.K. and Europe.

“For many producers globally, more than 70% of the total cost to produce ammonia is from the cost of natural gas. Natural gas forward curves suggest that nitrogen facilities in the U.K and Europe will be the world’s high-cost marginal producers for the foreseeable future, presenting a constant challenge to the sustainability of current operations,” the company said.

As a result of the strategic review, CF Fertilisers believes that only one manufacturing facility is needed to fulfill the U.K. AN demand it has been serving.

In this position, the Billingham facility is better positioned for long-term sustainability as it has sufficient capacity to meet all forecasted U.K. domestic demand for AN fertilizer, is more efficient than the Ince manufacturing facility, has an installed industrial customer base, and has the ability to import ammonia, the company said.

Billingham is the largest ammonia, AN, and CO2 production facility in the U.K. Billingham has an AN production capacity of 0.58 million mt/y, while Ince has 0.5 million mt/y of AN capacity, according to Green Markets’ “Nitrogen Quarterly Model.”

CF Fertilisers said Billingham has a meaningful volume of ammonia and nitric acid industrial contracts that pass through the cost of natural gas to customers, providing a foundation for profitable operation.

It also highlighted that the facility has a lower production cost per mt, as it is 10-20% more efficient than the Ince manufacturing facility and is a less-capital intensive facility than Ince as it has fewer production facilities. Billingham also has additional operational flexibility from a 40,000 mt ammonia storage tank and the ability to import lower-cost ammonia if necessary.

CF Fertilisers added that Billingham is also able to supply a substantial volume of CO2 to industrial gas customers, though the company conceded that has become less important to its future as industrial gas customers diversify their CO2supply away from CF Fertilisers UK.

The company’s Billingham complex is capable of producing 750 mt of CO2 per day for commercial use. Billingham and Ince have the combined capability to produce an estimated 60% of the U.K.’s CO2.

In its statement this week, CF Fertilisers noted the NS and NPKs products that were manufactured at Ince have historically made a minimum contribution to gross margin. It said this situation is not expected to improve due to a significant increase in the price of the raw materials – ammonium sulfate, phosphoric acid, and potash – used to make the products.

Last November, CF Industries had said during an earnings call that it was looking at bringing the Ince plant back online “in the next few weeks” using imported ammonia (GM Nov. 5, 2021). Executives had said given the price of natural gas during the winter, producing ammonia at Ince “won’t make sense.”

But in this past April, in an interview with Bloomberg, CF President and CEO Tony Will said the company probably will not be able to bring Ince back “anytime soon” (GM April 1, p. 27). The CEO said exporting from the Ince plant is “a challenge” since it is landlocked, and the plant has limited flexibility in the product it can make.

CF Fertilisers’ proposal to permanently shut the Ince plant has been met with dismay by the U.K.’s farming organizations.

National Farmers Union (NFU) President Tom Bradshaw was cited by the U.K’s Telegraph newspaper as saying the CF Fertilisers announcement is “a further blow for farmers who are already suffering from incredibly high inflation for fertilizer costs.

“This proposed closure confirms our fears that the Ince plant may be permanently shut down,” he said. “This comes at a time when costs and supply face unprecedented risk. This closure is likely to further restrict global supply, and we are seeking urgent clarification from CF on the production capabilities of its remaining plant at Billingham.”

The Agricultural Industries Confederation Head of Fertilizers, Jo Gilbertson, warned that the closure could put further upward pressure on food prices.

Operations at CF Fertilisers’ Billingham and Ince manufacturing facilities were halted in September 2021 due to high natural gas prices that made production at the sites unprofitable (GM Sept. 17, 2021).

The Billingham manufacturing facility was subsequently restarted a week later following an interim agreement reached with the U.K. government to cover the costs associated with restarting the ammonia plant to produce CO2 for the U.K. market (GM Sept. 24, 2021).

CF the following month reached CO2pricing and offtake agreements with its industrial gas customers in the U.K. (GM Oct. 15, 2021). The agreement ran until Jan. 31, and in early February, CF secured a new offtake and pricing agreement with the U.K.’s carbon dioxide industry (GM Feb. 4, p. 28; Jan. 28, p. 20).

CO2 – a byproduct of the ammonia production process – is vital for many of the U.K.’s food processing and drink sectors, as well as for the country’s hospitals and nuclear power sectors, among others.

In its June 8 statement announcing the restructuring, CF Fertilisers pointed out that since September 2021 it had made no redundancies at the business and all CF Fertilisers UK employees had been paid full salaries and bonuses, with payroll-related expenses totaling approximately £35 million (approximately $44 million at current exchange rates) during that time, “several times larger than the government support provided,” it said.

In the interview with Bloomberg in April, Will had confirmed that the Billingham operations at the time were profitable and that they should stay open through the U.K. spring application season (GM April 1, p. 27). But he questioned the viability of the Billingham facility by June and the summer months when no fertilizer application would be happening, and gas costs then would start to become a big question as well.

As part of the restructuring, CF Fertilisers is also proposing to adopt CF Industries’ global operating model for corporate functions, which it said could result in up to 55 redundancies.

The company said the adoption of the global operating model would entail the permanent transfer of select business activities to CF Industries’ headquarters in the U.S., with certain functions continuing to be performed in the U.K. to support the Billingham manufacturing facility and U.K. business.

CF Fertilisers also proposes to “optimize” Billingham manufacturing operations by closing Billingham’s operations center, which it said is a legacy of the multiple utilities and chemical businesses across the broader Billingham site, and reorganize the maintenance and support team, which could result in up to 33 redundancies at the site.

The company anticipates that some of the proposed redundancies might be avoided by redeployment opportunities. It said it expects to begin collective redundancy consultation with its recognized union, Unite, and elected employee representatives regarding its redundancy proposals shortly.

The company also is to discuss proposed revisions to current pay and conditions arrangements with the Unite union.

Additionally, CF Fertilisers said in order to provide greater resilience to operational issues, low-priced imports, and macro-economic forces, the company will enter into a separate consultation process under applicable pensions legislation, including with its pension trustees, regarding a proposal to reduce the maximum employer contribution level for the defined contribution (DC) pension scheme. It emphasized that there are no changes proposed for defined benefit (DB) pension schemes.

The company emphasized that no decisions will be taken on the proposals outline without engaging in the required consultation processes, and that management cannot pre-empt the outcome of the consultation process.

CF Fertilisers UK was formed in 2015 following the purchase by CF Industries of the 50% equity interest in GrowHow UK Ltd. that it did not already own (GM July 6, 2015). The stake was bought from Yara International ASA. CF Fertilisers UK’s current operations include the Billingham and Ince manufacturing facilities, as well as a corporate office located at Ince.

As of June 1, 2022, CF Fertilisers UK employed 544 individuals – 177 at the Billingham manufacturing facility, 283 at the Ince manufacturing facility, and 84 in corporate functions.

“The people and facilities that make up CF Fertilisers UK are part of a proud, 100-year history of providing customers in the U.K. with products vital to the country’s food security and industrial activity,” said CF Fertilisers UK Managing Director, Brett Nightingale.

“However, as a high-cost producer in an intensely competitive global industry, we see considerable challenges to long-term sustainability from our current operational approach,” he continued. “Following a strategic review of our business, we believe that the best way to continue our legacy of serving customers in the U.K. is to operate only the Billingham manufacturing facility moving forward while addressing cost pressures throughout our business.”