Which Fertilizer Giant Had the Best Nitrogen Margin in 2Q17?
As nitrogen fertilizer price realizations for major fertilizer producers (XLB) fell YoY (year-over-year) in 2Q17, it’s not surprising that nitrogen producers’ margins contracted during the same quarter.
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Gross margins by company
The gross margin average for the above five companies in 2Q17 stood at 36%, which shows a significant contraction on a YoY basis from 46% in 2Q16. Terra Nitrogen (TNH) continued to dominate with a high gross margin of 45%, though its margin contracted from 81%.
CVR Partners (UAN) saw a gross margin of 39%, which represents a YoY expansion from 25% in 2Q16. PotashCorp’s (POT) 2Q17 gross margin stood at 36%, contracting on a YoY basis, while Agrium (AGU) reported a gross margin of 31% for its nitrogen segment, also representing a YoY contraction.
CF Industries’ (CF) 2Q17 margin was the lowest at 15%, dropping from 46% in 2Q16.
Why margins contracted
These gross margins contracted in 2Q17 as a result of falling nitrogen prices, but the contraction was worse for producers that had operating costs above the realized selling prices. Some of the above companies lowered their costs to sustain margins, but it wasn’t enough to save them.
In the next part, we’ll move to potash.