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Egyptian to build Iowa fertilizer plant

09/06/2012 @ 9:17am

Egypt's Orascom Construction Industries announced plans Wednesday to invest $1.4 billion in a fertilizer plant in Iowa, shunning overtures from neighboring Illinois because of the state's budget crisis and taking advantage of cheap U.S. natural gas and soaring grain prices.

The shale-gas boom has spurred a surge of investment by chemical producers looking to tap cheap raw materials. Orascom said its proposed plant in Lee County in Iowa's southeastern corner would curtail imports of nitrogen-based fertilizer most commonly used to support corn planting.

The Egyptian conglomerate is in the process of spinning off its construction arm but has acquired a local building company to help construct the new plant, which is slated to open in 2015.

Orascom has been planning its U.S. expansion for more than a year, and Chief Executive Nassef Sawiris said the relative financial health of Midwest states played a key role in its final decision.

Iowa boosted its tax-incentive package to more than $100 million to lure Orascom, though state officials said this was still less than was offered by Illinois. The plant will create an estimated 165 permanent jobs, along with 2,500 construction jobs over the next three years.

Mr Sawiris said in an interview that his company rejected Illinois's overtures because of fears that corporate tax rates would increase as the state tries to tackle its huge budget deficit. Companies including CME Group Inc. and Sears last year threatened to relocate from Illinois before a last-minute compromise on corporate taxes.

"We were quite concerned, honestly, with Illinois's budget," he said. "We didn't feel like Illinois at this stage was the right place for us...so we decided to locate on the other side of the river."

The proposed plant is about four miles from the Mississippi River, providing easy access to the Corn Belt.

Nitrogen is a crucial ingredient for corn growth, and its demand has soared as grain prices have jumped to record highs in recent years, compelling farmers this spring to plant the most corn acreage since 1937. The U.S. is the world's largest corn producer and imported 54% of its nitrogen in 2011, according to the Department of Agriculture.

"This is probably the largest single country with a deficit in nitrogen," said Mr. Sawiris.

Natural gas is used as a feedstock to produce the nitrogen used in fertilizer, and low prices have spurred other investments. Deerfield, Ill.-based CF Industries Inc. in August increased its projected capital spending on new nitrogen capacity to $2 billion through 2016, up from a prior forecast of $1 billion to $1.5 billion. Much of the new capacity is expected to come online in 2015.

Mr. Sawiris said there remains plenty of room for new capacity as farmers in South America try to boost crop yields to the level seen in the U.S. He added that natural-gas reserves in Trinidad, a key supplier of nitrogen ingredients to companies such as Koch Industries Inc., are expected to run out within the next decade, which will increase reliance on U.S. supplies.

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