In the week ended March 25, 2016, ammonia prices continued to move sideways for the ninth straight week. This may put pressure on companies that sell ammonia such as Terra Nitrogen (TNH) and CF Industries Holdings (CF). CF, Yara International, Agrium (AGU), Group DF, and PotashCorp (POT) are the largest producers of ammonia globally.
During the week, average prices for ammonia at the ammonia terminal at Port Tampa Bay remained unchanged at $310 per metric ton from the previous week. Ammonia prices appear to be resilient for the ninth consecutive week at this price. Year-over-year, ammonia prices remain significantly depressed. They’re down ~56% from $485 per metric ton during the corresponding week last year.
Ammonia prices are affected by lower natural gas costs. Because most ammonia is upgraded to other nitrogen fertilizers, lower prices benefit companies that don’t sell it directly to the market. However, it’s the opposite for companies such as CF Industries, which sells ammonia as a product.
Sideways movement of fertilizer prices together with rising input material costs pressure margins for fertilizer companies such as CF Industries, Mosaic (MOS), Intrepid Potash (IPI), and Israel Chemicals (ICL).
You can invest in Mosaic through the SPDR S&P North American Natural Resources ETF (NANR), which invests about 1.6% of its portfolio in the stock.
Why is ammonia important?
Ammonia is the primary nitrogen product used to upgrade other fertilizer products such as urea, UAN (urea ammonium nitrate), DAP (diammonium phosphate), andMAP (monoammonium phosphate). Therefore, prices of ammonia have a significant impact on prices of other fertilizers as well.
Because most of the global ammonia production is converted into urea, we’ll look at urea price trends in more detail in the next part of this series.