Fertilizer Impact: Natural Gas Prices Rise Yet Again for Week Ending April 22
Fertilizer Happens: Your Update for the Week Ending April 22
Natural gas prices for fertilizers
Natural gas is the key raw material for the production of nitrogen fertilizers such as ammonia. Due to the abundant availability of natural gas, the nitrogen fertilizer industry is fragmented among several producers.
Prices rise
Natural gas prices for the week ending April 22, 2016, rose to $1.89 per MMBtu (British thermal units in millions) over the previous week’s $1.76 per MMBtu.
Here we’re using the spot prices for natural gas traded at Henry Hub, where gas prices hit a low of $1.49 per MMBtu six weeks ago. Notably, rising natural gas prices and unchanged fertilizer prices put pressure on CF Industries (CF), PotashCorp (POT), Terra Nitrogen (TNH), and CVR Partners (UAN).
Rising natural gas prices also affect the iShares US Basic Materials ETF (IYM) because this ETF invests in some of the companies mentioned above. IYM invests about 48% in chemical companies.
Natural gas price forecast
For the week ending April 22, the EIA (US Energy Information Administration) maintained its forecast for average natural gas prices at Henry Hub in 2016 to about $2.18 per MMBtu, but it was $2.25 per MMBtu last week. This forecast comes on the back of higher natural gas inventories in 2016 compared to previous years. The EIA maintained its natural gas prices forecast in 2017 at $3.02 per MMBtu.
With large corn acreage expected in 2016 (which puts grower margins at risk), there could be price pressure on fertilizers as growers try to trim their production costs. In this scenario, rising natural gas prices from the current levels could hurt fertilizer companies.
Continue to the next part for a look at coal prices.
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