Natural Gas Massacres Fertilizer Profits

Posted July 10, 2008

“The fertilizer industry uses a lot of natural gas… and I mean a lot. Fertilizer can’t be manufactured without gobs of it.” — Andrew Mickey

by Andrew Mickey

Baltimore – (TFN): The fertilizer industry uses a lot of natural gas… and I mean a lot. Fertilizer can’t be manufactured without gobs of it. According to the Government Accountability Office (GAO), “Natural gas is a key feedstock in the manufacturing of nitrogen for which there is no practical substitute.”

We can see the impact of soaring natural gas prices on fertilizer costs. In the chart below (view chart here), the National Agriculture Statistics Service shows us how natural gas prices can destroy profits of fertilizer producers.

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In 2001, natural gas prices spiked from $4 to $10 in three months. Meanwhile, nitrogen fertilizer prices only rose from about $200 per ton to about $325 per ton.

A lot of factors play a part in a 150% move (the amount by which natgas prices rose). What’s perfectly clear is that fertilizer companies paid the price. While they had to pay 150% more for one of their major inputs (natural gas), they were only able to charge about 60% more for their product. When companies are unable to pass increased costs onto consumers, their shares can experience drastic sell-offs. Read on to find a chart of natural gas vs. fertilizer prices and to learn more.

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