Fertilizer prices are going up as a result of tensions in the Middle East, with a continued closure of the Strait of Hormuz restricting the supply of natural gas. Natural gas is vital in the production of ammonia, urea, and urea ammonium nitrate (UAN), among other things. In fact, natural gas accounts for as much as 90% of the cost of ammonia. Similar supply shocks are possible in the manufacturing of sulphur-based fertilizers, as sulphur is a byproduct of oil refining and natural gas processing. These supply-chain issues are expected to bring windfall profits for fertilizer manufacturers as fertilizer prices soar.
Two of the companies set to benefit from this price surge are CVR Partners (UAN) and Intrepid Potash (IPI). CVR Partners specializes in nitrogen-based fertilizers, while Intrepid Potash offers potassium-based products. Bank of America Securities recently pointed out that these windfall profits will benefit fertilizer stocks in the short term, but analysts were quick to add that they don’t change the fundamentals of the industry. In other words, this is a cyclical spike, and things could normalize as soon as the Iran war comes to an end. The opportunity could be short-lived, but it is there.
