How Natural Gas Price Movements Could Affect Fertilizer Producers



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.

More From Market Realist