Natural gas prices
Last week, nitrogen players (XLB) using natural gas as a key source of input to produce nitrogen fertilizers saw an uptick in prices at Henry Hub. CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU) use natural gas as an input for their nitrogen fertilizers. However, China uses other sources along with natural gas.
Henry Hub is the key location where heavy trading takes place for natural gas in the US. The NBP (National Balancing Point) is its counterpart in the United Kingdom.
Last week, as reported by the EIA (U.S. Energy Information Administration), natural gas prices at Henry Hub rose 1.3% week-over-week to $3.03 per MMBtu (million British thermal units). Similar to spot prices, front month futures expiring in May 2017 also rose last week. They were 2% higher at $3.03 per MMBtu—compared to $2.9 per MMBtu week-over-week.
When natural gas prices rise, it impacts all producers—including the producers (SOIL) mentioned above. If market prices for fertilizers don’t rise in tandem, producers might see their margins get tighter. It’s a concern for a marginal producer that might not be able to sustain the cost of production from rising input costs. T0 learn more about the supply-demand dynamics for nitrogen fertilizers, read Here’s What’s Ahead for Nitrogen Investors.