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Fertilizer Prices for the Week Ended July 8: More Bad News?

PART:
1 2 3 4 5 6 7 8
Part 5
Fertilizer Prices for the Week Ended July 8: More Bad News? PART 5 OF 8

Fertilizer Update: How Coal Prices Moved for the Week Ended July 8

Pet coke

The petroleum (or pet) coke index remained unchanged from the previous week during the week ended July 8, 2016. China uses coal as a hydrogen source for urea.

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.

Fertilizer Update: How Coal Prices Moved for the Week Ended July 8

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Pet coke price index

The commodities in the above chart are key hydrogen sources for nitrogen fertilizers, and their price movement impacts the profitability of fertilizer producers. In the week ended July 8, 2016, the pet coke index remained unchanged at $37.80 per metric ton compared to the previous week.

On the other hand, anthracite coal prices in China increased to an average of $79 per metric ton from $78.80. Prime coking coal prices at Pingdingshan stood at an average of $116.70 per metric ton, unchanged from the previous week. However, the Chinese yuan weakened by 0.5% 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 or increased for coal. 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. The price of petroleum coke last week was ~30% lower than the $53.80 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), which 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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