In the past three weeks, natural gas prices have been experiencing upward momentum at Henry Hub in the US. Natural gas can account for up to 60% of the input costs for nitrogen fertilizer production. Natural gas is traded heavily at Henry Hub in the US. In Europe, natural gas is traded heavily at the NBP (National Balancing Point).
For the week ending September 29, natural gas prices moved broadly higher week-over-week at Henry Hub. Natural gas prices rose as much as 5.6% from a weekly average of $2.96 per MMBtu (million British thermal unit) to a weekly average of $3.13 per MMBtu.
Companies (XLB) like CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU) use natural gas to make nitrogen fertilizers. Usually, rising natural gas prices increase nitrogen fertilizers’ production costs.
When nitrogen fertilizers’ production costs are higher, the margins could take a hit if nitrogen fertilizers’ market prices don’t move higher.
Outlook on natural gas prices
Natural gas prices are expected to rise in the coming year. In the U.S. Energy Information Administration’s recent outlook, natural gas prices are expected to average $3.29 per MMBtu in 2018 from an average of $3.05 per MMBtu in 2017.