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Urea Prices Fell Last Week: How Did Other Fertilizers Perform?

PART:
1 2 3 4 5 6 7 8
Part 5
Urea Prices Fell Last Week: How Did Other Fertilizers Perform? PART 5 OF 8

Coal Prices Move Sideways, Pressure Gas-Based Nitrogen Producers

Pet coke

The petroleum (or pet) coke index remained unchanged from the previous week during the week ending July 15, 2016.

While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) mainly uses pet coke, a coal-like substance, as a hydrogen source. China mainly uses coal as a hydrogen source.

Coal Prices Move Sideways, Pressure Gas-Based Nitrogen Producers

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Pet coke price index

The commodities in the above chart are key hydrogen sources for nitrogen fertilizers. Their price movement impacts fertilizer producers’ profitability. In the week ending July 15, 2016, the pet coke index remained unchanged at $37.80 per metric ton—compared to the previous week.

Anthracite coal prices in China were flat week-over-week at $79 per metric ton. Similarly, prime coking coal prices at Pingdingshan stood at an average of $116.5 per metric ton—unchanged from the previous week. However, the Chinese yuan continued to weaken by 0.1% compared to the US dollar during the week.

Supply-side impact

Earlier, we saw that natural gas prices declined last week. In contrast, prices were flat for coal and pet coke. These conditions are positive for natural gas–based fertilizer producers such as CF Industries (CF), Terra Nitrogen (TNH), and Agrium (AGU). China is the largest exporter of urea.

Petroleum coke prices have been falling over the years—similar to what’s happened with natural gas. Last week, the price of petroleum coke was ~30% lower than the $53.88 per ton we saw during the same week in 2015. Similarly, coal prices in China have fallen by an average of 7.5% year-over-year.

For broad-based exposure to this industry, investors can consider the iShares Global Materials ETF (MXI). MXI invests 4.5% of its portfolio in agricultural chemical companies such as DuPont (DD).

In the next part of this series, we’ll look at phosphate fertilizer prices.

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