The UK’s largest carbon dioxide (CO2) producer will close one of its two UK-based factories and cut hundreds of jobs as part of a massive restructuring operation.
CF Fertilizers has proposed the permanent closure of its manufacturing plant near Chester, which could result in up to 283 redundancies – and will continue operations exclusively at its other site in Billingham, Teeside.
The company says the restructuring is key to ensuring the business remains profitable and sustainable, so the company can still supply fertilizers, CO2 and other industrial products to its domestic customers.
Currently, it is responsible for 60% of the UK’s CO2 output, which is used in food and drink packaging, fire extinguishers, foaming rubber and humane animal slaughter.
Besides CO2, CF Fertilizers is also one of the leading domestic manufacturers of ammonia and fertilizers.
Its Billingham plant is the largest ammonia, ammonium nitrate (AN) and CO2 production facility in the country..
Commenting on the developments, Susannah Street, Senior Investment and Market Analyst, said City MA: “Restructuring the business into positioning itself for long-term viability will be a relief for industries heavily dependent on fertilizer and carbon dioxide production. There will still be some doubts about the product volumes available in the future given that one of its key factories will close permanently at a time when there is a global shortage.
CF Fertilizers navigates difficult headwinds
The decision follows an internal strategic review of its operations, after the producer was forced to shut down operations at its two plants last September due to soaring energy costs.
The Cheshire facility has not restarted operations since, but production at the Billingham facility has been restarted after being bailed out by the taxpayer with three weeks of emergency funding.
The company then remained operational over the winter by striking back-to-back last-resort deals with the government – which did not include public money – to ensure supplies could be sent to UK industries over the winter.
This included sustained discussions with the Department of Business, Energy and Industrial Strategy.
According to a confidential letter seen by AM Citywarned Business Secretary Kwasi Kwarteng last year that high energy taxes and cheap foreign imports could jeopardize the country’s gas supply and the domestic fertilizer industry.
CF Fertilizers said its ammonia sales volumes to domestic customers have fallen nearly 30% since the 2017-18 season, due to intense competition from lower-cost imports.
Industry reforms are crucial for the survival of the national fertilizer sector
Natural gas is the primary fuel source in the production of many common fertilizers, meaning spikes between benchmarks have a big influence on margins for companies like CF Fertilizers.
In the case of ammonia production, around 70% of the costs involved are the price of natural gas.
The company expects nitrogen facilities in the UK and Europe to be the world’s high cost marginal producers for the foreseeable future, posing an ongoing challenge to the sustainability of current operations.
As carbon costs continue to rise dramatically in the UK, CF Fertilizers expects its production to be placed at an even greater competitive disadvantage to imports without a carbon border adjustment mechanism to ensure fair conditions of competition.
Along with the plant closure, it could also permanently transfer most of its business operations to CF Industries headquarters in the United States, which could result in up to 55 layoffs, and could eliminate 33 additional jobs by reorganizing its maintenance teams.
Brett Nightingale, Managing Director of CF Fertilizers UK, said: “As a high cost producer in a fiercely competitive global industry, we see considerable challenges to the long term sustainability of our current operational approach.
“Following a strategic review of our business, we believe the best way to continue our tradition of serving customers in the UK is to operate only the Billingham manufacturing plant while responding to pressures on costs across our business.”