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How Natural Gas Price Movements Could Affect Fertilizer Producers

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Natural gas prices

Last week, Henry Hub natural gas prices saw a week-over-week improvement. For most of this year, natural gas prices have remained stable, showing lower volatility compared to what we saw in the previous year. Stability in energy prices is a huge relief to nitrogen producers (XLB) such as CF Industries (CF), PotashCorp (POT), Agrium (AGU), and Terra Nitrogen (TNH), as natural gas can account for as much as 70% of the cost of production for nitrogen fertilizers.

Weekly movements

The average weekly prices of natural gas last week rose by as much as 2.7% week-over-week to $2.9 per MMBtu (million British thermal units) from $2.8 per MMBtu. In its recent Short-Term Energy Outlook report, the EIA (Energy Information Administration) predicted that natural gas production will rise in 2017 and 2018 year-over-year.

These natural gas production expectations could negatively impact natural gas prices. However, in the same report, the EIA estimates that natural gas prices will rise to $3.19 per MMBtu in 2018 from $3.03 per MMBtu in 2017, which may indicate strength in demand, which would support prices.

In the next part, we’ll discuss the weekly price movements in phosphate fertilizers.

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