For the week ended April 15, 2016, the pet coke index remained unchanged compared to the previous week. While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) mainly uses coal. However, CVR Partners recently acquired Rentech Nitrogen Partners, which uses natural gas as a hydrogen source.
Coal, or petroleum coke, is also widely used by nitrogen fertilizer producers in China. Stable coal prices and low transportation costs create a negative situation for natural gas–based producers such as CF Industries (CF), Terra Nitrogen (TNH), and PotashCorp (POT).
Pet coke price index
For the week ended April 15, the pet coke index stood at $38.90 per metric ton, unchanged from the previous week. Coal (anthracite) prices in China stood at $80.30 per metric ton while the prices of prime coking coal in Pingdingshan stood at $100.40 per metric ton.
Prices at both points in China remained unchanged compared to the previous week. However, the USDCNY (US dollar to Chinese yuan) exchange rate inched up by 0.18% during the week.
The price of petroleum coke has been falling over the years, similar to natural gas. Petroleum coke’s price of $38.90 per ton in the week ended April 15 was ~32% lower than $57.00 per ton during the same week in 2015. Similarly, average coal prices in China have fallen by an average of 25% over the year.
For broad-based exposure to this industry, investors could consider the iShares US Basic Materials ETF (IYM). IYM invests about 48% in chemical companies.
Coal versus natural gas
Coal prices, like natural gas prices, have hit a low point due to a low demand and excess supply imbalance. Recently, natural gas prices have ticked up while coal prices are mostly unchanged. This benefits Chinese producers.
Low coal prices remain a concern for producers such as CF Industries, as they lower production costs for coal-based Chinese producers. China is the largest exporter of urea.
In the United States, according to the EIA (U.S. Energy Information Administration), natural gas will be the largest fuel source for energy for the first time in 2016. It should pass coal this year, which may explain why coal prices are low.
Now, let’s turn our attention to phosphate fertilizers, starting with DAP (diammonium phosphates).