Why Did PotashCorp’s Nitrogen Prices Fall in 3Q16?

PotashCorp (POT) sells nitrogen fertilizers such as ammonia, urea, and nitrogen solutions. It competes with other natural gas–based nitrogen producers such as CF Industries (CF) and Terra Nitrogen (TNH), which primarily produce and sell nitrogen fertilizers. Agrium (AGU), which is a part of the PowerShares International Dividend Achievers ETF (PID), produces nitrogen fertilizers as well.

Overall average nitrogen prices fell 37% to $200 per metric ton from $319 per metric ton in 3Q15. Ammonia prices fell the most, to $252 per metric ton from $434 per metric ton a year ago, a 42% fall. Urea prices fell 36% YoY (year-over-year) to $226 per metric ton from $352 per metric ton. Nitrogen solution prices fell 30% YoY to $148 per metric ton from $212 per metric ton.

According to the company, excess capacity and lower global energy costs pushed down selling prices for nitrogen during the quarter. Energy costs include the cost of natural gas and anthracite coal, which are used as input material to produce nitrogen fertilizers. In North America, PotashCorp, CF Industries (CF), Terra Nitrogen (TNH), and Agrium (AGU) use natural gas to produce nitrogen products, while companies in China use coal. Like average selling prices, the company’s cost per ton of nitrogen products also declined, falling 25%.