How Nitrogen Fertilizer Prices and Input Costs Moved Last Week
Natural gas and nitrogen fertilizers
Hydrogen sources such as natural gas or coal are key raw materials for the production of nitrogen fertilizers like ammonia. Due to the abundant availability of hydrogen sources such as natural gas, the nitrogen fertilizer industry is fragmented with several producers.
Prices rise
Natural gas prices for the week ended March 18 stood at $1.83 per MMBtu (British thermal units in millions), higher than the $1.72 per MMBtu a week ago and from the low of $1.49 per MMBtu two weeks ago. We’ve used the spot prices for natural gas traded at Henry Hub where natural gas is heavily traded.
Previously, we saw that urea prices in the US Cornbelt fell during the previous week ending March 18. Falling fertilizer prices with rising input costs are negative for CF Industries (CF), PotashCorp (POT), Terra Nitrogen (TNH), and Agrium (AGU). Falling prices also affect the iShares US Basic Materials (IYM) because this ETF invests in some of the above companies. IYM invests about ~48% in chemical companies.
What is the outlook?
The U.S. Energy Information Administration (or EIA) is forecasting the average prices for natural gas at Henry Hub to be about $2.25 per MMBtu in 2016, which is down by about 14% from the average prices of $2.63 per MMBtu in 2015.
The natural gas prices increased as a result of the supply of natural gas softening because of a decline in production. However, the lower demand driven by warmer weather does not appear to have impacted the rise in natural gas prices.
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