What’s Happening to Pet Coke Prices?

Coal, or petroleum coke, is widely used by nitrogen fertilizers producers in China. Declining coal prices negatively impact natural gas-based producers.

Adam Jones - Author

Feb. 24 2016, Published 1:41 p.m. ET

uploads///Pet Coke Price Index

Coal prices

While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) primarily uses coal as a hydrogen source to produce nitrogen-based fertilizers. Coal, or petroleum coke, is also widely used by nitrogen fertilizers producers, mainly urea, in China. So declining coal prices also create a negative situation for natural gas-based producers such as CF Industries (CF), Terra Nitrogen (TNH), and Potash Corporation (POT).

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Pet coke price index

Prices of pet coke have been declining over the years, similarly to what we’ve seen in natural gas. The pet coke price index stood at $45.6 per ton as on February 24, down 20% from $57.5 per ton on the same day one year previously, in 2015.

Investors might thus consider the iShares US Basic Material ETF (IYM), which invests about 12% in agricultural chemical companies.

Why track coal?

In the graph above, you’ll see that the floor price for urea of about $225 per ton was set by urea producers on the far left of the cost curve. Naturally, since the market prices of urea are determined by marginal producers, a decline in their cost of production pushed the floor downward. Because of this price decline, North American manufacturers saw their margins squeezed. This is why it’s key to keep a track of coal prices.

In the next and final part of this series, we’ll look at urea prices in more detail.


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