Tuesday, October 9, 2012

Chemical Manufacturers Affected due to Rise in Natural Gas Rates – AGU, CF, DOW, LYB

Just after an analyst predicted that 21% increase in the rates of natural gas (according to the data provided by FactSet) might impact 4th quarter earnings results, shares of chemical and fertilizer producers declined on Monday.

There are numerous rates for the sudden rise of fuel prices. Weather forecasts have shown an unusually cold weather in the Midwest and Northeast and the demand has surged due to an enormous number of nuclear plant outages. An explosion at a Mexican gas processing plant might require more natural gas to be shipped from the U.S., according to Citi Research analyst P.J. Juvekar.

Natural gas futures declined 2 cents to $3.38 per 1,000 cubic feet on Monday. It is a 77% jump from the month of April, when the rates hit a record low in 10 years, coming to $1.907 per 1,000 cubic feet. Since natural gas constitutes 60-80% of cash costs and is utilized to produce ammonia industrially, it might have an impact on North American producers like CF Industries Holdings, Inc.(NYSE:CF) and Agrium Inc. (USA)(NYSE:AGU). Natural gas is used by the The Dow Chemical Company(NYSE:DOW) and LyondellBasell Industries NV(NYSE:LYB) to generate power for chlor-alkali or methanol.

Juvekar states that the 4th quarter might see a slight margin pressure if high rates of natural gas prevail. CF Industries shares declined $3.75 to $218.71 along with Agrium and LyondellBasell which dropped 64 cents to $103.64 and 30 cents to $52.38 respectively. Dow Chemical went down 20 cents to $29.

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