Nitrogen input material
In the previous part of this series, we saw how China has put pressures on urea prices through capacity buildup. While a few Chinese producers use natural gas to produce urea, most of them mainly use coal as an input material for producing nitrogen fertilizers.
Natural gas prices
Week-over-week, natural gas prices at the Henry Hub in the United States were broadly negative for the week ended June 30, 2017. Average natural gas prices were $2.90 per MMBtu (million British Thermal Unit). That was about a 4.5% fall from the average price of $3.03 per MMBtu the previous week. Henry Hub is where natural gas is traded heavily in the United States.
The futures for natural gas are trading lower than a year ago, indicating that the market for natural gas is in contango. Better-than-expected temperatures along with a steady supply have pushed down natural gas prices. According to the latest outlook issued by the EIA (U.S Energy Information Administration), natural gas prices at Henry Hub in 2017 are expected to average $3.16 per MMBtu. In 2018, they’re expected to rise to $3.41 per MMBtu.
Producers in North America (MOO), which include CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU), use natural gas to produce nitrogen fertilizers. With natural gas accounting for as much as 70.0% of the cost of production for nitrogen fertilizers, movements in natural gas are important to track.
Next, let’s look at the prices for phosphate fertilizer.