At EP3, we cover fertilizer regularly, more so with the recent rally in pricing levels. Yesterday I published our Australian pricing model (Fertilizer Price Shock), the first of its kind. It’s not good news, but I thought I would look for some potential good news in fertilizer, as it has all been a bit bleak lately.
The biggest driver of fertilizer pricing is energy. Whilst there have been factors such as the Chinese ban, this is a secondary factor primarily driven by escalating fertilizer prices – caused by high energy. So what are energy prices doing?
The first chart shows the price of coal at Newcastle and Quinhuang as a monthly average. This is a good place to start as coal is an important energy source for manufacturing Chinese fertilizers. The coal price at Quinhuang. The peak price from at least 2005 to present was in October at US$266; it has since fallen US$74 to US$192.
The second chart shows the gas price in the US. In the US, fertilizer is produced using natural gas. In October, gas prices peaked at US$5.6/mmbtu, and this was the highest level since 2008. We have started to see a downward movement in the gas price, with December so far averaging US$3.9/mmbtu.
What does this all mean? Energy prices have fallen, both for coal in China and gas in the US. This is a good sign, and as it is the highest cost of fertilizer this will eventually flow through to the fertilizer price.
It is important to note that while the energy price has fallen, it remains high. If energy costs continue to slide, it is at least a potential light at the end of the tunnel for fert pricing. The real problem is that it might not make much of an impact on our pricing ahead of seeding. It might be a case of too little too late.
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