Natural gas is one of the key components in the production of nitrogen and ammonium phosphate fertilizers. Natural gas can account for almost 70.0% of input costs for nitrogen fertilizers. Natural gas prices can be highly volatile and may impact the profitability of nitrogen producers (XLB) such as CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU).
Last week, which ended August 25, 2017, natural gas prices at Henry Hub saw a positive momentum week-over-week. They rose as much as 3.2% to a weekly average of $2.95 per MMBtu (million British thermal unit) from $2.85 per MMBtu a week ago. According to the EIA (U.S. Energy Information Administration), natural gas consumption in the United States rose 4.0% compared to a week ago. Rising demand usually raises natural gas prices as well.
Natural gas prices at Henry Hub have broadly been higher compared to last year. This positive momentum is a result of higher demand and growing exports. The EIA forecasts this positive momentum to continue well into next year. According to the EIA, natural gas prices are expected to average $3.19 per MMBtu in 2017 and could go higher in 2018 to $3.29 per MMBtu.
Next, we’ll take a look at prices for DAP (diammonium phosphate) fertilizers.