Investors in America's steelmakers and fertilizer producers can smell gas.
Front-month natural-gas prices rose back above $6 a million British thermal units last week. Steelmakers burn gas to fuel their blast furnaces. Credit Suisse estimates that before adjusting for hedging, a $1 increase in the gas price knocks $1.60 a share off U.S. Steel X +0.08% 's value and 74 cents off AK Steel Holding AKS -1.11% 's—6.5% and 11.5% of their current share prices, respectively.
CF Industries Holdings CF -0.07% , meanwhile, uses gas to make nitrogen-rich plant food. But the company shielded itself against swings in natural-gas prices by locking in 75% of its first-quarter natural-gas needs at $3.66 MMBtu via hedges. It has also hedged half of its second-quarter exposure.
Still, analysts at brokerage Feltl say CF's earnings could face pressure if strength in gas prices persists. They expect earnings of $18.38 a share in the second half of the year if gas prices average $3.75 MMBtu, but that drops to $17.72 if gas hovers at $4.25. So far this year, gas has averaged $5.31.
But while traders thrill to daily swings in front-month futures, corporate profits are affected by how gas prices perform over time. Front-month futures were back below $6 Monday. The futures curve suggests prices will drop markedly as winter weather eases. Prices for gas to be delivered in April have risen only about 8% over the past month and are below $5.
That offers some hope for the steelmakers especially, whose stocks have slipped by double-digit percentages this year. But with gas inventories possibly hitting a 10-year seasonal low by the end of this harsh winter, there is another risk to negotiate: a hot summer. All that air conditioning would take a lot of electricity—and the gas to produce