The court order will force Israel Chemicals to suspend operations and will cost the firm some $100 million in annual sales.
Yoram Gabison Mar 08, 2017

Last week’s court order closing the giant ammonia tank owned and operated by Haifa Chemicals is a key victory for environmentalists, but is likely to have severe ramifications for two of Israel’s biggest companies and for the global fertilizer market.

Haifa District Court rejected an appeal by the company last week and said the 12,000-ton-capacity tank had to be emptied and closed by April 1, citing the risk of an environmental disaster if the tank leaked or was otherwise damaged. On Tuesday, the company asked the court to keep 600 tons in the tank.

Meanwhile, Haifa Mayor Yona Yahav appealed to prime Minister Benjamin Netanyahu to stop his chief of staff, Eli Groner, from seeking an enlarged government grant of 500 million shekels ($136 million) to build a new tank in the sparsely populated Negev.

Shutting the tank will force Haifa Chemicals — a $700 million-a-year privately owned company that employs 600 people in Israel — to cease operations in the next several weeks, unless some kind of solution is found.

The tank is a key part of Haifa Chemicals’ manufacturing operation. It produces 515 million tons of potassium nitrate fertilizer as well as 100,00 tons of soluble fertilizers used in irrigated farms and hothouses, food phosphates used to make meat and cheese, potassium nitrate for thermo-solar projects and industrial chemicals.

The impact of Haifa Chemicals’ closure will be felt far beyond Israel’s borders.

The company is the second-largest producer of potassium nitrate fertilizer after Chile’s SQM. If Haifa Chemicals is forced out of the market, SQM, with its current market share of 45%, will have a near monopoly, sources said.

Israel Chemicals also stands to lose significant sales. A hint of that came already last week when Yigal Tohar, ICL’s vice president for global operations, warned customers that because of the court’s decision it would no longer be able to supply them with water-soluble monoammonium phosphate, or MAP, until further notice.

The company will have to shutter the facility that makes 45,000 tons of the products annually, which is sold for $700 a ton. That could deprive ICL of $30 million to $32 million of revenues a year. Out of concerns the company could be liable for penalties for not fulfilling contracts, Tohar termed the ruling a force majeure event.

Other ICL products, like MKP and Pekacid, will continue to be manufactured and sold, he said.

In addition, Haifa Chemicals is one of ICL’s biggest customers for its potash. It buys 350,000 to 400,000 tons of potash a year for use in making potassium nitrate fertilizer. About 800 kilograms of potash is needed for every ton of the final product.

The two companies brought in an arbitrator in a dispute over pricing and under the ruling ICL has to sell Haifa Chemicals between 270,000 and 330,000 tons annually, which represented a little over 6% of ICL’s output in 2016.

At prices of $164 to $172 a ton, the sales account for about $55 million. Haifa Chemicals also buys 110,000 tons of phosphate rock for about $12 million annually. Altogether, that means ICL now stands to lose sales of at least $100 million a year because of the court ruling.

ICL said on Tuesday that it was confident it would be able to find other customers for the potash Haifa Chemicals is no longer buying. It added that the tank’s closure would not have a significant impact on the company’s financial results.

With reporting by Ora Coren.
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