Morningstar | Raising Our Long-Term Nitrogen Price Forecast to $240 Per Ton on Reshaped Cost Curve
We've taken a fresh look at both our near-term and long-term nitrogen price forecasts. We are increasing our near-term urea price forecast by $10 per ton to $240 from $230. Increased anthracite coal prices in China, which have resulted in lower production and lower exports to the U.S., are driving our near-term price forecast. We think this dynamic will continue to support nitrogen prices through the remainder of 2018 and into 2019.Separately, we've also reviewed our long-term price forecast and we are increasing our 2025 urea price forecast to $240 per ton in 2018 real terms, up from $220. Our forecast for a higher spread between natural gas prices in the U.S. versus prices in Europe and Asia is driving our change. After updating our cost curve for the increased differentials, we now forecast nitrogen production from European natural gas feedstock will become the long-term marginal cost of production.
Previously, we had forecast that nitrogen production from Chinese coal would represent the marginal cost of production. However, many of the older, high-cost Chinese coal plants will be shut and replaced with new, lower-cost production. Over time, this will allow Chinese producers that export nitrogen to the U.S. to produce nitrogen at a lower cost than European producers who use natural gas, thereby displacing them on the cost curve.
As a result of our nitrogen price updates, our CF Industries fair value estimate increases to $45 per share from $30. Additionally, our Nutrien U.S. dollar fair value estimate increases to $64 per share from $61, and our Nutrien Canadian-dollar fair value estimate increases to CAD 83 per share from CAD 79.
For more information on our outlook for CF Industries, please see our Aug. 3 note "CF's Volumes Rebound After Late Start to Season; Raising FVE to $45 Higher Nitrogen Forecast." For more information on our outlook for Nutrien, please see our Aug. 2 note "Raising Our Nutrien FVEs on Higher Near-Term Fertilizer Profit Outlook."
CF Industries Holdings is a global fertilizer and chemical company. The company's principal nitrogen fertilizer products are anhydrous ammonia, granular urea, urea ammonium nitrate solution and ammonium nitrate. The company's other nitrogen products include diesel exhaust fluid, urea liquor, nitric acid and aqua ammonia, which are sold primarily to its industrial customers, and compound fertilizer products, which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus, and potassium. The company serves its customers in North America through its production, storage, transportation and distribution network.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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