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Mosaic’s 4Q16 Raw Material Costs Compared to the Market

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Raw material costs

Earlier, we saw that Mosaic’s (MOS) realized prices for phosphates fell due to the weakness in global demand. But it was also due to falling input costs. Lower input costs encourage competition (MOO) to step up production.

If the spread between the cost of production and average selling prices becomes smaller, companies’ margins are squeezed. Let’s see how Mosaic’s raw material prices fared in 4Q16.

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Realized input costs

Ammonia is the key input material required for the production of DAP (diammonium phosphate) and MAP (monoammonium phosphate) fertilizers. Ammonia prices fell to $259 per metric ton, which was 35.0% lower than $404 per metric ton in 4Q15.

Although falling raw material costs are usually positive for fertilizer companies, it’s tricky because companies that purchased raw materials at a higher cost won’t reap the benefits of low-cost raw materials. The average market price for ammonia was $220, which was 15.0% lower than the company’s cost.

Natural gas

The price of natural gas, the key input material for ammonia, rose in 4Q16. That quarter, spot prices at Henry Hub were $3.20 per MMBtu (million British thermal units), a 45.0% rise from ~$2.70 per MMBtu in 4Q15.

Ammonia prices impact companies such as PotashCorp (POT), CF Industries Holdings (CF), Terra Nitrogen (TNH), and Agrium (AGU). It’s important for investors to track price movements regularly.

Sulfur and phosphate rock

The price of sulfur per short ton also fell from $146 per long ton to $87 per long ton, a 40.0% fall. The cost per ton for sulfur was significantly higher for Mosaic by ~26.0% compared to $69 per long ton. Mosaic’s prices for phosphate (blended) rock fell slightly to $58 per ton, from $60 per ton in 4Q15.

Next, we’ll see how average realized prices and input costs impacted Mosaic’s gross margins.

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