The EU fertiliser market looks set for further consolidation as CF Industries, the US-based global nitrogen producer, this week confirmed it is in talks with OCI, the Dutch-based nitrogen producer, regarding a potential merger.

CF Industries didn’t provide any details on a potential deal and said it doesn’t plan to comment further at this stage. CF Industries manufactures nitrogen in the United States and Canada and currently manufactures 6.7m tonnes of nitrogen nutrients per year and has ambitions to grow this by 25% by 2017.

Meanwhile, its peer, OCI, produces nitrogen fertilisers from America 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 fertiliser, with plans to grow this to 8.9m tonnes by the end of 2016.

Earlier this month, CF Industries agreed with the Norwegian-based Yara to acquire its 50% interest in GrowHow for a total cash consideration of $580m.

This surprised many, given that Yara, with its far stronger position in Europe, was considered the natural buyer.

Now under the full control of CF Industries, the GrowHow deal gives CF Industries a manufacturing position in Europe, with nitrogen production facilities in both Ince and Billingham in the UK. The UK requires over 40% imports to meet total nitrogen demand.

This new proposed deal between CF Industries and OCI would give the US producer a further foothold into the lucrative European nitrogen market. But this is not CF Industries first attempt to capture a share of the European market. Last year it failed in merger talks with Yara, Europe’s largest nitrogen producer.

It is well established that Europe is an uncompetitive region to produce nitrogen as it is a gas importer. Production in the EU also does not cover consumption, with 20% of fertiliser needs imported each year.

As state involvement is declining in EU fertiliser production and the large fertiliser producers are cleaning up their portfolios, there is a trend towards consolidation.

While there is significant additional capacity coming on stream, global nitrogen demand growth is projected to continue at about 2% per year, or the equivalent of over 6m product tonnes of urea. What this will mean for fertiliser prices on farm in the longer term remains to be seen.