Market Report / ICL Shares Drop Over Negative Potash Forecast

Potash prices predicted to drop 25%, as Russian producer Uralkali ups production to undercut cartel.

Israel Chemicals stock fell 18% Tuesday following a poor forecast for the price of potash, a key product for the Israeli company.

Earlier in the day Russian potash producer Uralkali predicted that prices would fall below $300 per ton following the company's decision to withdraw from the Belarus Potash Company, a joint venture exporting potash from Belarus.

ICL's latest potash contracts were struck at a price of $400 per ton.

The stock price of ICL's parent company, Israel Corporation, dropped 20% following the news.

Potash is an important ingredient in fertilizer. "The fertilizer market is expected to oscilate wildly," said IBI Investment House analyst Gil Bashan. "It's hard to imagine worse news in the potash market than this." Bashan’s rough calculation was that every $10 drop in the price per ton of potash would lower ICL's share value by a shekel.

Uralkali reportedly has decided to shift strategies and undercut the market by increasing the volume of potash exported. Until now, the potash market has been dominated by a duopoly of producers - BPC and Canpotex - which sought to maximize prices instead of production.

Uralkali’s move leaves Canpotex - which unites Potash Corp of Saskatchewan, Agrium and Mosaic - as the world's largest potash exporter. Potash Corp made an offer to acquire control of ICL in 2012, but rescinded the offer in April this year in the face of opposition from ICL's union and Finance Minister Yair Lapid.

Uralkali and Belarus potash maker Belaruskali were partners for eight years in BPC, which accounts for 43% of global potash exports. Uralkali said it had left the venture because Belaruskali made a number of key fertilizer ingredient deliveries outside the partnership. Uralkali chief executive Vladislav Baumgertner said in a statement that the partners had reached an unfortunate "deadlock."

"In the near future we expect [global] competition to become stronger - that will push prices down," Baumgertner told reporters in a conference call on Tuesday.

Uralkali plans to boost its potash sales to 13 million tons in 2014 and 14 million tons in 2015, from 10.5 million tons in 2013, Baumgertner said. The company will try to expand its share in key fertilizer markets, such as China, India and Brazil.

Ofer Vaknin