Fertilizer Prices Soar as Gas Price Spreads Hit Historic Levels

Fertilizer prices have continued to rise in September, reversing a trend seen in August where many raw materials retreated from their highs. The closure of the Strait of Hormuz drove up fertilizer components like ammonia, phosphates, urea, and potash, but once the shock wore off, prices normalized.

However, unlike the refining trade, the fertilizer trade has become about spreads, not raw input prices. With the spread between gas prices in Europe and the U.S. reaching historic levels, fertilizer companies that turn natural gas into nitrogen can take advantage of this arbitrage opportunity.

The main Dutch hub supplying Europe reported a spot price of approximately $27 per MMBtu on Sept. 11, compared to the $2.80 per MMBtu spot price in the U.S. This disparity is expected to continue due to EU gas storage being below its five-year average and Middle East and Russian plants possibly years away from returning to full capacity.

Three companies are benefiting from this spread: CF Industries, CVR Partners, and LSB Industries. Despite their stock prices pulling back from their spring highs, these companies' margins are rising faster than costs.