Israel Chemicals Ltd. reported a sharp drop in net profits and a slight drop in revenues for the first quarter of 2014. Net profits were down by 57 percent to $131 million versus $305 million in the corresponding quarter in 2013. Revenues fell by 1 percent to $1.613 billion from $1.64 billion in the first quarter of last year.
ICL said that it reported record sales of potash and phosphates during the first quarter on a volume basis but this was offset by lower prices. In addition, there was continued growth in specialty fertilizer sales. ICL Fertilizers reported revenues of $933 million in the first quarter of 2014 versus $1 billion last year. The company said the drop in revenues was a result of a decline in product prices.
Operating revenue for ICL Fertilizers fell by 38.6 percent for the quarter to $180 million from $293 million last year. The company attributed the decline to lower potash prices, increase in the cost of sales and an increase in operating expenses. ICL cited that this was partially offset by a drop in energy prices due to the greater use of natural gas at several of its Israeli facilities. Operating margins at ICL Fertilizers fell to 19.3 percent from 29 percent in the first quarter of 2013. In addition, ICL said that the labor dispute at Rotem Amfert which included a three week strike had a $7 million impact on ICL Fertilizer’s first quarter operating profit and would have an additional $11 million impact in 2014.
ICL sold a record 1.47 million mt of potash in the first quarter compared to 1.31 million mt in the corresponding quarter last year. This was attributed to higher volume sales to China, Brazil and Europe. The company said that despite the strike at Rotem Amfert it sold a record 525,000 mt of phosphate fertilizers in the first quarter. Revenues were $465 million versus $460 million. The increased quantities sold were offset by reduced prices.
ICL noted that in January and February it signed contracts for the sale of potash in the first half of 2014 in China at a price of $305/mt, representing a $95 reduction compared to agreements signed in 2013. Referring to the Indian market ICL said that it agreed to supply approximately 700,000 mt including options for additional quantities at prices similar to those of other supplies to the Indian market. The company noted that these prices were approximately $105 per ton lower than 2013 levels. ICL also noted increased potash sales to the Brazilian market where demand remains strong.
Excellence Nessuah analyst Gilad Alper noted that ICL’s operating margins on its potash business in the first quarter were 32.7 percent. “The last time the margins were so low was in the second quarter of 2007 and the price of potash at the time was $203 a ton.” He added that this underscores the rise in the cost of production for ICL due to regulation, royalties, labor costs and the strong shekel.
He noted that phosphate business was better than expected due to higher volumes and had an operating margin of around 9 percent. Alper said volumes for potash and phosphates remain strong. He believes that potash prices have reached their bottom and have increased slightly in recent months. But the chemical industry analyst stressed that for ICL to return to much higher profitability potash prices will have to rise significantly over current levels.