May 23, 2012 / 6:28 AM / in 6 years

UPDATE 2-Israel Chemicals sees pick-up in fertiliser demand

* Q1 net profit $288.9 mln vs $267.2 mln forecast

* Revenue $1.552 bln vs $1.524 bln forecast

* To pay dividend of $200 million

* Shares down 0.5 pct in declining market

By Tova Cohen

TEL AVIV, May 23 (Reuters) - Fertiliser and specialty chemicals firm Israel Chemicals (ICL) reported better than expected first-quarter results on Wednesday, and said demand for fertilisers picked up in the second quarter.

“From the beginning of the second quarter there has been a re-awakening of demand in the fertiliser market,” the world’s sixth-largest producer of potash said on Wednesday.

ICL noted that at the end of the first quarter it signed contracts with Chinese importers for the shipment of 670,000 tonnes of potash in the first half of 2012. 

“Given this contract and decreased inventories in the global supply channels, coupled with strong farming fundamentals, this should result in improved demand in the second quarter,” Citi analyst Andrew Benson said.

Since the beginning of the second quarter, Brazil’s rate of potash imports has increased significantly and the trend is expected to continue through the third quarter until the peak of the fertilising season in the beginning of September, ICL said.

The market for phosphate fertilisers has begun to improve due to the return of Indian buyers to the marketplace as well as to strong demand from Brazil, Asia and the United States.

“While higher royalties and costs will impact the results looking out, the farming fundamentals are strong,” said Benson, who sees ICL shares as being undervalued and rates them “buy”.

ICL struck a deal with Israel’s government in late 2011 to pay 10 percent in royalties on minerals extracted from the Dead Sea. The firm, which has an exclusive permit to extract minerals from the Dead Sea, had previously paid 5 percent royalties.

ICL will also pay 3.04 billion shekels ($792 million)as part of a project to extract salt buildup on the Dead Sea floor.

Shares in Israel Chemicals were down 0.5 percent to 39.98 shekels in midday trade, compared with declines of more than 1 percent in the main Tel Aviv indices.

Canada’s Potash Corp, the world’s largest fertiliser producer, owns 13.9 percent of ICL, which is controlled by conglomerate Israel Corp.

ICL’s net profit in the first quarter rose to $288.9 million from $279.7 million a year ago. Revenue increased to $1.552 billion from $1.528 billion, its highest ever in the first quarter.

Analysts polled by Reuters had on average expected the company to earn $267.2 million on revenue of $1.524 billion.

During the quarter, ICL sold 919,000 tonnes of potash, a 12 percent drop from a year earlier, but at increased prices.

The bottom line benefited from a lower tax rate and reduced financing expenses, which offset a rise in raw material and energy costs.

UBS analyst Roni Biron said he expects 2012 to reflect higher energy costs due to a temporary shortage of natural gas in Israel.

“We view first quarter results as backward looking,” said Biron, who rates ICL “buy” with a 55 shekel price target.

ICL declared a dividend of $200 million for the quarter compared with $195 million a year earlier.

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