Sales for the quarter, $1.9 billion, were 29% higher than in the same quarter last year, exceeding analyst expectations of $1.7 billion. Figures tempered by strong shekel, reduced sales.
By Yoram Gabison

Israel Chemicals Limited posted its third highest ever quarterly operating profit in the second quarter this year – $543 million – 41% higher than in the same quarter last year. The spike in profits was led by a sharp rise in average potash and phosphate fertilizer prices.

Sales prices for most other ICL products rose as well, with climbing profit margins in the chemical concern’s bromine segment operations also providing a notable contribution to the improvement in results.
The Dead Sea Chemicals plant – Ofer Vaknin – 19082011

The Dead Sea Chemicals plant, which is owned by Israel Chemicals. Using natural gas saved money.
Photo by: Ofer Vaknin

These, however, were partly set back by reduced sales quantities and rising raw material costs. The strengthening of the shekel against the dollar also impacted results, necessitating a $30 million increase in employee-related provisions and benefits. The company’s net income for the quarter totaled $426 million, a 44% increase over the parallel quarter in 2010.

ICL sales for the quarter, $1.9 billion, were 29% higher than in the same quarter last year, far exceeding average analyst expectations of $1.7 billion. Acquisitions of specialty fertilizers manufacturer Antonio Fuentes Mendez of Spain and the specialty fertilizers division of Scotts Miracle-Gro in the U.S. contributed $137 million to the growth in sales.
The Dead Sea Chemicals plant – Emil Salman – 19082011

The Dead Sea Chemicals plant. Mountains of potash.
Photo by: Emil Salman

These acquisitions also raised the ICL group’s foreign production to 50% of total sales activity. Changes in foreign currency rates added $34 million to turnover but this was offset by an overall $42 million impact on revenues from reduced sales quantities.

Fertilizer sales, which include potash, phosphate fertilizers, phosphate rock and fertilizer-grade phosphoric acid, totaled $1.1 billion in the second quarter of 2011, a 34% increase over those of the same quarter of 2010.

Potash sales, the company’s top profit generator, grew 12% year over year to $572 million, with average prices reaching $449 per ton – 26% higher than in the second quarter last year.

An increase in potash sales to Brazil at $550 per ton and penetration into the U.S. market, where potash prices reach $600 per ton, helped the company achieve a relatively high $449 average sales price.

But sales quantities for the same period fell 12%: The company lost 400,000 tons in potash sales this quarter due to delays in closing its sales contracts with India. Also impacting on sales was a continuing strike at Haifa Chemicals’ northern plant, which normally consumes 200,000 tons of potash annually.
Forecast: Growing potash sales to India

ICL is expecting a further sales boost in the second half of this year, with potash shipments to India anticipated at the rate of 500,000 to 550,000 tons per quarter and a contract signed last month to supply China with 500,000 tons of potash by the end of the year at $470 per ton.

Operating income for potash operations rose 30% from the same quarter last year, to $305 million, attributable mainly to the net effect of higher prices offset by reduced sales quantities. The company also saved $25 million in energy costs at its Dead Sea production facilities thanks to their conversion to the use of natural gas in place of more expensive fuels. Further savings are expected for the company in the second half of the year, with conversion to natural gas of its production facilities at Mishor Rotem in the third quarter and its plants at Ramat Hovav in the fourth quarter after these sites have been connected to the gas grid.

Sales of phosphate fertilizers and products grew 86% compared to the parallel quarter, to $464 million, resulting from the consolidation of activities acquired from Scotts and Mendez, and an $84 million boost from higher product prices. Exports were helped by reduced output by competing producers in Tunisia, Egypt and Syria.

Operating income this quarter from the phosphate sector climbed 82% from the previous year to $78 million, representing a 17% operating margin compared to 16.7% the preceding year. The rise in sales prices was offset by higher prices for sulfur, a key input in phosphate production.

ICL’s industrial products sales in the second quarter rose 18% over the same quarter in 2010 to $424 million as a result of generally higher sales prices, particularly for flame retardants, despite sagging orders from semiconductor manufacturers.

Operating profit contributed by ICL’s industrial products segment totaled $87 million, 60% higher than in the second quarter last year. Increased sales prices for elemental bromine were the main contributing factor, following the withdrawal of Chinese producers from this market due to the depletion of bromines in the brines of Shandong Province. This also led to an increase in ICL sales of solutions for balancing pressures in oil and gas drilling.

ICL is working to raise its bromine production by reducing production bottlenecks and increasing shipment capacity by enlarging its fleet of specially-built isotanks used for transporting bromine. The company is also expected to complete its purchase of Albemarle Corporation’s 50% share in Tetrabrom Technologies, maker of the TBBA flame retardant, by the end of this year, thereby raising its production capacity by 22,000 tons per year.

Improvement to the division’s profitability is subject to rising raw material and energy prices. Operating activities provided ICL with $284 million in cash flow for the quarter that just ended, down from $521 million for the second quarter of 2010, apparently due to the reduction in potash shipments to India during this period.