CF Industries, the US agricultural fertiliser maker, has agreed to acquire the European and North American assets of Dutch rival OCI in an $8bn deal that will create one of the largest nitrogen fertiliser makers in the world.

CF will hold a 72.3% stake in the new entity, with the remaining 27.7% under the control of OCI.

The move will help CF to better compete with Norway’s Yara, the industry leader. Last year, Yara and CF tried to merge but the deal fell apart after they failed to win shareholder support for the transaction.

The new company will be the world’s largest publicly traded nitrogen company, with production capacity close to 12m nitrogen-equivalent tonnes.

CF Industries currently manufactures nitrogen in the United States and Canada. Last year, it produced 6.7m tonnes of nitrogen nutrients and this deal will significantly help it to reach its ambitious growth targets. It expects to increase production capacity by almost two thirds over the next 24 months.

Its peer, OCI, produces nitrogen fertilisers from the Americas to Asia and also owns two plants in Egypt and one in Algeria. OCI has its eye firmly set on US expansion as it seeks to exploit cheap shale gas. It currently produces about 6.8m tonnes of fertilisers, with plans to grow this to 8.9m tonnes by the end 2016.

The production facilities CF will acquire from OCI are situated in the Netherlands and the US. CF will also acquire OCI’s 45% interest in an ammonia facility located in Texas, along with a distribution business in Dubai. OCI’s production facilities in Egypt and Algeria are excluded from the deal.

Last month, CF Industries completed an agreement to acquire the remaining 50% interest in GrowHow UK Limited from Yara, for $580m. CF says this latest acquisition will complement its GrowHow business, creating synergies that will save approximately $500m over the coming years.

CF sold its phosphate business to The Mosaic Company for $1.4bn last year, which further focused the company as a pure nitrogen player.

This deal gives the US producer a further foothold into the lucrative European nitrogen market.

Given that nitrogen is a globally traded commodity, a low-cost production base is critical. Natural gas is the primary raw material input in the manufacturing of nitrogen fertiliser, accounting for roughly 70% of the cash production costs. Importantly, over 90 percent of CF Industries’ production base is located in North America, a region with abundant and low-cost natural gas. North American future gas costs remain significantly below the feedstock costs in other nitrogen production regions of the world. It is well established that Europe is an uncompetitive region to produce nitrogen as it is a gas importer.

Approximately 40% of North America’s nitrogen requirements are currently met through foreign imports. Although there have been many new nitrogen production facility projects announced in recent years, few have progressed beyond an initial announcement.

Even after all the new capacity currently under construction in North America comes online, imports will still be required to satisfy over 20% of North American demand. Similarly, production in the EU does not cover consumption, with 20% of its fertiliser needs imported each year. This demonstrates there is a supply deficit in both markets, which bodes well for producers. It is for this reason that market dynamics have changed from a selling price based on production costs to one based on market demand. The fact that CF’s profit margins are among the highest in the fertiliser industry comes as no surprise considering the deficits in markets.