Coal Prices Continue to Move Sideways for the Week Ended April 29
Fertilizer Update: Weekly Prices for the Week Ended April 29
Coal prices
For the week ended April 29, 2016, the petroleum, or pet, coke index remained unchanged compared to the previous week. While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) mainly uses coal. However, CVR Partners recently acquired Rentech Nitrogen Partners, which uses natural gas as a hydrogen source.
Coal, or pet coke, is also widely used by nitrogen fertilizer producers in China. Stable coal prices and low transportation costs create a negative situation for natural gas-based producers like CF Industries (CF), Terra Nitrogen (TNH), and PotashCorp (POT).
Pet coke price index
For the week ended April 29, the pet coke index stood at $35.80 per metric ton, unchanged from the previous week. Coal (anthracite) prices in China stood at ~$79 per metric ton, and the prices of prime coking coal in Pingdingshan stood at ~$100.30 per metric ton.
Prices for anthracite coal declined slightly by 0.5% while at PingDingShan, it remained unchanged over the previous week. However, the US dollar to Chinese yuan exchange rate declined by 0.3% during the week.
The price of petroleum coke has been falling over the years, which is similar to what has happened with natural gas. Petroleum coke’s price of $35.80 per ton in the week ended April 29, was ~37% lower than the $57 per ton we saw during the same week in 2015. Similarly, average coal prices in China have fallen by an average of 23% in 2016.
For broad-based exposure to this industry, investors might consider the iShares US Basic Materials ETF (IYM). IYM invests about 48% in chemical companies.
Coal versus natural gas
Coal prices, like natural gas prices, have hit a low point due to low demand and excess supply imbalance. Recently, natural gas prices have ticked up while coal prices are mostly unchanged. This benefits Chinese producers.
Low coal prices remain a concern for producers such as CF Industries, as low prices reduce production costs for coal-based Chinese producers. China is the largest exporter of urea.
Now, let’s turn our attention to phosphate fertilizers.
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