Nitrogen surge to lift CF, Nutrien earnings; Mosaic faces headwinds

 Nitrogen-focused fertilizer producers are set to report stronger quarterly earnings as a surge in prices, driven by Middle East gas disruptions, lifts margins, though the benefit may only start to fully show in coming quarters.

Analysts expect nitrogen-focused producers ​such as CF Industries (NYSE: CF) and Nutrien (TSX: NTR), which make fertilizers derived from natural gas such as urea and urea-ammonium ‌nitrate, to outperform fertilizer peers with heavier exposure to potash and phosphate, including Mosaic (NYSE: MOS).

Tighter global nitrogen supply linked to disrupted natural gas flows has pushed up prices, while Mosaic’s portfolio leaves it less exposed to the rally.

CF Industries and Nutrien are expected to post combined net income of about $619 ​million for the first quarter, up from $388 million a year earlier, according to data compiled by LSEG.

The U.S.-Israeli war on Iran ​has disrupted Middle Eastern natural gas flows, pushing up nitrogen prices. While the region produces little ⁠nitrogen itself, it is a key supplier of natural gas used as feedstock for fertilizer production in Europe and Asia, tightening ​global supply.

That has created an advantage for North American producers, who benefit from relatively stable and cheaper gas inputs. As the conflict restricts ​exports from the Gulf region, North American fertilizer companies could stand to benefit from the tightening global nitrogen supply, said analysts at Morningstar.

Urea barge prices at New Orleans have seen a bump of more than 46% since the U.S.-Israeli war on Iran started in February 28, said Josh Linville, ​vice president for fertilizer at financial services firm StoneX.

Urea prices averaged about $490 per short ton in the first quarter, up from ​roughly $375 a year earlier, according to StoneX data. “We’ve never seen anything like this before,” said Linville, citing large global nitrogen supply losses that are ‌lifting prices ⁠while U.S. producers’ input costs remain relatively stable.

U.S. buyers are also arbitraging urea imports at New Orleans, redirecting some shipments overseas to profit from higher global prices, tightening domestic supply.

Barge prices refer to physical spot prices for fertilizer traded on river barges at major distribution hubs.

Nitrogen fertilizers, typically applied as urea or urea-ammonium nitrate during the spring planting window, tend to see a sharp but time-bound ​surge in demand, amplifying price ​gains during supply shocks.

“We see ⁠nitrogen pure plays as most benefiting from higher prices, but valuations are already pricing in the cash windfall,” said RBC Capital Markets analyst Andrew Wong, adding that a greater earnings impact is likely ​from the second quarter.

Nutrien and CF are set to report results on Wednesday, followed by ​Mosaic on May ⁠11.

Outside nitrogen rally

Mosaic, which has no nitrogen production, faces a more mixed outlook.

While phosphate prices have firmed, margins are expected to remain under pressure due to higher sulphur and ammonia costs.

Potash markets, meanwhile, remain relatively subdued and among the most affordable fertilizer segments.

If prices go up ⁠too ​high and too fast, affordability concerns will resurface once again, and volumes could ​be negatively impacted. Farmers could reduce phosphate application rates, said Mizuho analyst Edlain Rodriguez, noting that these headwinds reflect Mosaic’s recent share move.

(Reporting by Sumit Saha in Bengaluru; Editing by Maju Samuel)