Israel Chemicals Entering Joint Venture With Albemarle of U.S.

Tie-up aims to prevent overcapacity in flame retardant market and reduce impact of Sheshinski royalty reforms

Ofer Vaknin

Israel Chemicals said over the weekend it had reached a joint venture agreement with rival Albemarle of the United States to manufacture next-generation fire retardants.

The joint venture, which is still subject to approvals, would operate two plants already owned by ICL: a plant in the Netherlands already operating that has a capacity to make 2,400 metric tons of flame retardants annually, and another 1,000-metric-ton plant in Ramat Hovav in the Negev due to open in the final quarter of the year.

A joint statement by the two companies did not mention any dollar figures, but ICL has invested about $100 million in the two facilities, which means that Albemarle, which is based in Baton Rouge, Louisiana, will likely be paying IUCL some $50 million for its shares in the JV.

Shares of ICL closed up 1.1% at 27.90 shekels ($7.81) in Tel Aviv Sunday.

For ICL, the tie-up appears to have two goals in mind. The first is to ensure that the global flame-retardants market isn’t hit with overcapacity by the two companies, the world’s biggest makers of bromine – the key raw material in retardants. Both companies are making the transition into new products as the European Union, Japan and other countries impose a ban on hexabromocyclododecane, or HBCD, the leading flame retardant used in making products from polystyrene foam.

“The combined experience and know-how related to bromine and bromine derivatives of Albemarle and ICL will ensure a reliable, high-quality alternative offering to HBCD,” said Troy De Soto, Albemarle’s vice president for fire safety solutions. “Albemarle brings its financial backing and GreenCrest product manufacturing experience to the venture.”

The tie-up is also part of ICLK’s efforts to reduce the company’s exposure to the government’s Sheshinski committee, which is examining royalties policy toward natural resources, in particular ICL’s mining of Dead Sea minerals.

ICL has already announced it is cancelling $750 million of planned investments to expand production of potash, its key product, and has frozen another $1 billion of capital spending in Israel slated for the next five years. Last week, it said it was readying to close its Dead Sea Magnesium unit and cut the payroll at Dead Sea Bromine.

By selling 50% of its flame retardants operation, ICL apparently hopes to accelerate the return on its investment in the plants before Sheshinski imposes a threatened windfall profits tax of 42% on operating margins above 11%. It may also save it taxes on profits on bromine downstream products, like flame retardants.