PotashCorp’s nitrogen shipments
PotashCorp’s (POT) Nitrogen segment contributed about 36% of the company’s total sales in 2Q16. In 2Q16, this segment experienced a 31% fall in revenue. Let’s look at what may have caused the decline.
In 2Q16, POT’s nitrogen shipments fell by 8% to 1.5 million metric tons compared to 1.6 million metric tons in 2Q15. During its earnings call, the company’s management indicated that the Market has demand for nitrogen products. However, low input costs, such as those for natural gas, have made the Market competitive. Lower natural gas encourages producers to increase their outputs in hopes of seeing higher margins.
The supply side remains a concern for North America. PotashCorp’s management added that new capacities coming online in the second half in 2016 would pressure the nitrogen market (MOO). This will be negative for companies such as CVR Partners (UAN) and Agrium (AGU), both of which sell nitrogen products.
The United States remains a net importer of nitrogen fertilizers, but it has faced pressures from China, the world’s largest producer of urea. China uses coal as opposed to North American producers, who have benefitted from low natural gas prices.
In the next article, we’ll look at how nitrogen prices have performed during the quarter.