Shares of fertilizer manufacturer CF Industries (CF) were sliding 2.91% to $29 in Tuesday afternoon trading after RBC Capital Markets downgraded the stock to "underperform" from "sector perform."

CF had gained almost 11% between Friday and Monday amidst higher urea prices. However, RBC analyst Andrew Wong said in a note circulated to investors Tuesday morning that the rally was premature.

Urea's gains are partly due to seasonal demand and partly due to delays in plant start-ups for producers like CF and OCI and higher Chinese coal prices, he wrote.

"We expect that the nitrogen cost curve will continue to flatten in 2017 as new capacity is added to the global market and Chinese energy input costs moderate - although timing [is] uncertain," Wong added. He politely declined an interview request.

Wong projects urea prices to fall from $250 per metric ton to a price floor of about $210 in 2017.

CF stands to lose in an uncertain nitrogen products market because of its historical sensitivity to fundamental changes in the profitability of making the chemicals, Wong wrote. If the nitrogen market remains in an oversupply situation until 2019 as he expects, that could depress CF shares.

RBC currently has a $22 price target on CF. If nitrogen prices are weaker than expected, that could push the stock as low as $14, Wong wrote. Conversely, stronger prices could lift shares to $37.

CF Chart CF data by YCharts

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