Producers in China primarily use coal as an input material to produce nitrogen, especially urea-based fertilizers. In contrast, natural gas–based fertilizer producers in North America (IYM) have been benefiting from lower-cost natural gas. China is the world’s biggest urea exporter. As a result, it’s impacted by price movements in coal along with the movements in natural gas prices.
Among the different categories of coal, anthracite coal is used to produce nitrogen fertilizers. For the week ending November 4, average weekly anthracite coal prices in China rose 1.9%—compared to the previous week. The prices rose to $102.8 from $100.9 per metric ton. Excluding the effects of foreign currency, anthracite coal in China rose 1.7% on the back of Chinese renminbi strengthening by 20 basis points to the US dollar.
Last week, natural gas prices fell, while anthracite coal prices rose. While it’s positive for natural gas–based producers, we must be cautious because falling natural gas prices lower producers’ margins. Natural gas producers include CF Industries (CF), Terra Nitrogen (TNH), and Agrium (AGU).
According to CF Industries, about 7.6 million metric tons per year in Chinese anthracite plants closed in 2016. Chinese coal-based manufacturers have been facing price pressure. Some of them have been selling below the cost of production. It could have sparked the closures.
CVR Partners (UAN) is based in North America. It uses pet coke, a coal-like substance, to produce nitrogen fertilizers. Weekly pet coke prices for the week ending November stood at $48.5—unchanged from the previous week.
In the next part, we’ll discuss phosphorus fertilizers such as diammonium phosphates and monoammonium phosphates.