Israel Chemicals' Q3 Profit Plunges Amid Potash Market Shocks

Despite dismal profit report, the company announced that it was preparing a dual listing of its shares on the New York Stock Exchange.

Weakness in the global potash market led to a sharp decline in Israel Chemicals' third-quarter earnings, the company reported on Wednesday. The earning report came as ICL announced it was preparing a dual listing of its shares on the New York Stock Exchange.

ICL, the world’s sixth-largest producer of the crop nutrient potash, attributed lower sales and profits to “weakness and instability in the potash market, which led to an appreciable reduction in amounts sold and to lower selling prices of fertilizers.”

Adjusted net profit for the quarter was $196 million, down from $395 million a year earlier, ICL reported. The 2013 figure excluded one-time tax expenses of $118 million. Revenue fell to $1.45 billion from $1.76 billion. ICL had been forecast, in a Reuters poll of analysts, to earn $188.4 million on revenue of $1.46 billion.

Shares of ICL dropped 3% on the Tel Aviv Stock Exchange in Wednesday trading, to close at NIS 29.20. Its parent company, The Israel Corporation, fell 2.7% to NIS 1,820.

An announcement by Russia’s Uralkali in July that it would quit one of the world’s two largest potash cartels triggered a decline in prices, which led customers to delay purchases in anticipation of more price reductions. There was some recovery in demand towards the end of the third quarter, which continued in October, ICL said.

ICL’s potash production increased by 9% in the third quarter to 1.27 million metric tons, due to greater production efficiency at the company’s mine in Britain. However, potash sales were down 44% to $338 million, as the price per ton for the fertilizer dropped 20% to an average of $368. In addition, shipments dropped 38%.

The sharp drop in prices after July forced ICL to renegotiate its contract with its key Indian market for lower prices. That delayed shipments during the third quarter, but the company said on Wednesday that the situation had since improved in the current quarter. The market gyrations also caused ICl orders to Europe and Brazil to suffer delays, as buyers held out for lower prices, the company said.

The company is still waiting to sign new contracts with Chinese customers, which will probably be for $300 a ton. In the meantime, the operating profit in potash fell 64$ in the quarter from a year earlier, ICl said.

ICL’s other key segment, phosphates, also suffered difficult market conditions in the third quarter, which, among other things, forced the company to announce this week that it was putting 130 employees at its Rotem Amfert unit on early-retirement

ICL said listing its shares in New York would aid its growth by improving access to international financial markets and giving it more flexibility in financing mergers and acquisitions. It did not provide further details of its plans.

ICL was also hit by lower demand for phosphate fertilizers in India and increased competition that led to lower prices.

ICL’s phosphates unit, Rotem, is going through one of its most difficult crises of the past several years, ICL said. Rotem’s cost competitiveness is well below the average of competitors and available resources are only expected to last six to nine years, because the Israeli government has still not granted a license to mine new reserves, it said.

The company said it had begun to implement a growth strategy, launched at the end of the second quarter, that includes measures to improve operational efficiencies to save a few hundreds million dollars by 2016. It is also examining a number of growth initiatives in the fields of agriculture, food and engineered materials.

ICL said it would distribute a dividend of $54.5, million after paying a dividend of $221 million for the second quarter.

Canada’s Potash Corp owns 14% of ICL. Attempts to increase its stake have been rebuffed by the Israeli government.

Bloomberg