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CVR Partners Faces Headwinds from Weak Nitrogen Prices


On Sep 16, we issued an updated research report on fertilizer company CVR Partners UAN. .

While CVR Partners should gain from its acquisition of Rentech Nitrogen Partners and capacity expansion actions, it remains exposed to pricing pressure stemming from lower nitrogen fertilizer prices.

The company is seeing lower prices for urea ammonium nitrate (“UAN”) as witnessed by a roughly 26% decline in the second quarter of 2016. Urea prices have been under pressure due to high levels of supply from Chinese producers. Ammonia prices also slipped around 24% in the second quarter.

Global capacity expansion continues to exert pressure on urea and other nitrogen fertilizer prices. Nitrogen prices are expected to remain under pressure in the near term due to elevated supply. Abundant nitrogen supply (driven by new production capacity) is expected to affect global prices in the second half of 2016. As such, depressed nitrogen fertilizer prices may weigh on CVR Partners’ margins in the short haul.

CVR Partners also faces pricing competition from other nitrogen fertilizer producers. Lower cost of natural gas, which is used as primary feedstock by most of its competitors, unfavorably impacts CVR Partners’ competitive position vis-à-vis other nitrogen fertilizer makers.

The company’s operations are also subject to the risks of production outages due to plant shutdowns. A major turnaround at the East Dubuque plant involving around $6.6 million expenses affected the company’s distribution in second-quarter 2016. The full impact of the turnaround on its distribution for the quarter has been estimated at around $10 million. A prolonged plant shutdown, if any, could have an adverse impact on the company’s results from operations and financial condition, moving ahead.

CVR Partners has a Zacks Rank #4 (Sell).

CVR PARTNERS LP Price and Consensus

CVR PARTNERS LP Price and Consensus | CVR PARTNERS LP Quote

Better-ranked companies in the basic materials space include Innophos Holdings Inc IPHS, Innospec Inc. IOSP and Mitsubishi Chemical Holdings Corporation MTLHY, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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