Pet Coke and Coal Prices Moved Sideways Last Week
While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) mainly uses pet coke as a hydrogen source.
Aug. 10 2016, Updated 9:05 a.m. ET
Pet coke
While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) mainly uses pet (petroleum) coke, a coal-like substance, as a hydrogen source. China also primarily uses coal as a hydrogen source. The pet coke index remained unchanged from the previous week during the week ended August 5, 2016.
China also primarily uses coal as a hydrogen source. The pet coke index remained unchanged from the previous week during the week ended August 5, 2016.
Pet coke price index
The commodities in the above chart are key hydrogen sources for nitrogen fertilizers. Their price movements affect the profitabilities of fertilizer producers such as CF Industries (CF), Terra Nitrogen (TNH), CVR Partners (UAN), and PotashCorp (POT).
In the week ended August 5, 2016, the pet coke index remained unchanged at $37.8 per metric ton, compared to the previous week.[1. Prices rounded off to the nearest tenth]
Anthracite coal prices in China were also flat week-over-week at an average $79.6 per metric ton.[2. Last week’s average price] Similarly, prime coking coal prices at Pingdingshan stood at an average of $117 per metric ton, unchanged from the previous week. However, the Chinese yuan strengthened by 0.3% compared to the US dollar during the week. Because of this change Chinese coal prices appear to have changed when converted to USD.
Supply-side impact
Earlier, we saw how natural gas prices moved last week. Prices were flat for coal and pet coke. These conditions are negative for natural-gas-based fertilizer producers such as CF Industries (CF), Terra Nitrogen (TNH), and PotashCorp (POT). Bear in mind that China is the largest exporter of urea.
Pet coke prices have been falling over the years, similar to what’s happened with natural gas. Last week, the price of pet coke was ~33% lower than the $54.7 per ton seen during the same week in 2015. Similarly, coal prices in China have fallen by an average of 7.2% year-over-year.
For broad-based exposure to this industry, investors can consider the iShares Global Materials (MXI). MXI invests 4.5% of its portfolio in agricultural chemical companies such as DuPont (DD).
In the next part of this series, we’ll look at phosphate fertilizer prices.
