Prices, Royalties Concerns Cloud Israel Chemicals Profit

13.05.2013 -

Israel Chemicals (ICL)'s forecast-beating first-quarter profits were overshadowed by worries about potash prices on Monday, and a government proposal to examine state royalties on natural resources also distracted from the firm's healthy order books.

ICL's sales of potash, a nutrient which improves crop yields, rose 42% from the year-ago period to 1.31 million tons and the company said increasing volumes in both potash and phosphate fertilizer compensated for lower prices.

Net profit in the quarter rose 6% to $305 million from $289 million a year earlier and revenue grew 9% to $1.64 billion. ICL had been forecast to earn $286 million on revenue of $1.61 billion, according to a Reuters poll.

ICL said it signed deals to supply 660,000 tons of potash to China in the first half of the year and 920,000 tons of potash to India - 100,000 more than initially agreed - including options for 50,000 tons, from April 2013 to January 2014.

The company also said Brazil was showing strong demand for fertilizers this year.

However, prices for contracts signed with China were down $70 per ton compared with last year, not just for ICL but for all the major potash producers. Contracts with India were $63 per ton lower than previous agreements from 2011.

Demand for potash, which improves yields of corn, rice, palm oil and other crops, has boomed in the past decade as a growing global population and better incomes and higher living standards in developing countries fuel global food demand.

The stock has lost nearly 10% since April 25 when Canada's Potash, one of the world's largest potash producers, said it was abandoning efforts to take over ICL because of strong opposition in Israel, but analysts said other concerns were now taking precedence.

"At this price level it goes beyond the Potash deal. It has to do with regulatory uncertainty and some easing in commodities pricing," said UBS analyst Roni Biron.

The regulatory uncertainty is the result of comments made last month by Finance Minister Yair Lapid that he would set up a public committee to re-examine the state's rights to natural resources managed by private companies.

"Some people are saying maybe he (Lapid) will go ahead with another increase in royalties on potash. As long as it's out there people are saying they are going to wait till it's clarified," Biron said.

Separately, ICL urged the government to approve its plan to mine phosphates at a new site in the Negev desert, saying its reserves would be significantly reduced in the long term if the plan failed. That could lead to a phasing-out of its phosphate operations in Israel, it said.

"The company has begun investigating alternative phosphate mining sites outside of Israel," ICL said.

The Barir field is near the town of Arad, whose residents oppose new mining activities, fearing health repercussions.

ICL set a dividend of $213 million or 16.7 cents a share, up from 11.6 cents in the fourth quarter.