Prices for diammonium phosphate (DAP) have hit their highest level since November 2008, reaching $500 to $520/metric ton, reports Wayne Gordon, senior analyst at Rabobank. "Strong demand from Europe, the U.S. and South America, as well as further tighteing of inventories have supported prices." Near-term prices are expected to edge higher, he says. "But by the end of the year, prices should have moderated somewhat as supply starts to catch up and demand eases."
Urea prices also have firmed from their mid-year trough. Gordon expects a sideways trend in the near-term. "Urea producers in Ukraine have the potential to open up capacity that is sitting idle, but high gas prices there have kept producer margins tight despite rising product prices."
Overall, natural gas prices should not contribute to an increase in nitrogen fertilizer price. "The bears have the solid overall near-term technical advantage," says market analyst Jim Wyckoff. "A 2.5-month-old downtrend is still in place on the daily bar chart. The next downside price objective for the bears is closing prices below solid technical support at $3.50. First support is seen at $3.768 and then at the contract low of $3.697. The next upside price objective for the bulls is closing prices above solid technical resistance at $4.20. First resistance is seen at last week's high of $3.946 and then at $4."
The Energy Information Administration projects the Henry Hub natural gas spot price to average $4.76/MMBtu in 2011, compared with $4.54 in 2010.
Consumption of natural gas for power generation was up nearly 1.3 Bcf/day, at 20.2 Bcf/day in 2010. The use of natural gas for electric power generation surged this year because of the 23 percent increase in U.S. cooling degree-days, resulting in a more than 11% increase in natural gas consumption in the power generation sector over the last 4 months compared with the same period last year. Projected natural gas consumption in the power generation sector falls by 0.4 Bcf/d (2%) next year because of the expected return to near-normal summer temperatures.
We have plenty of natural gas on hand: On Aug. 27, working natural gas in storage was 3,106 Bcf (U.S. Working Natural Gas in Storage Chart), which is 208 Bcf less than the previous year’s level and 169 Bcf greater than the (2005–2009) average.