August 15, 2012 / 1:17 PM / 5 years ago

UPDATE 2-Israel Chemicals sees hope in Brazil, India demand

* Q2 net profit $407.3 mln vs $405.5 mln forecast

* Q2 revenue up 27 pct to $1.96 bln vs f‘cast $1.95 bln

* To pay dividend totalling $285 mln

* Shares up 2.6 pct in Tel Aviv

By Steven Scheer

JERUSALEM, Aug 15 (Reuters) - Strong demand for fertiliser ingredient potash in Brazil will boost third quarter results for Israel Chemicals (ICL) while depleting inventories in India should also lead to new contracts, the company said on Wednesday.

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

“The remaining quantities of potash to be shipped to China and India under existing contracts, together with strong demand from Brazil, are expected to enhance the (fertiliser) segment’s third-quarter 2012 results,” ICL, the world’s sixth-largest producer of the commodity, said on Wednesday.

It noted that demand in India had fallen earlier in the year due to reduced subsidies while a stronger dollar led to higher retail prices of potash and phosphate fertilisers to farmers. But the past three months had seen a sharp increase in demand due to a decrease in inventories.

“The company estimates that potash supply within the framework of the potash contracts signed with customers in India is expected to end by the third quarter of the year,” ICL said.

Its last contract with Indian customers, signed a year ago for $490 a tonne, expired in March. It also signed deals with Chinese importers for up to 670,000 tonnes of potash in the first half of 2012 at about $470 a tonne.

“India remains a major source of uncertainty,” said Gilad Alper, an analyst at Excellence Nessuah Securities.

“The drought in the United States that is pushing the price of grain to record highs will eventually force India to sign on new, highly-priced contracts.”

Alper, who rates ICL as a “buy” with a target price of 56 shekels a share, said the exact timing of any new deals was unclear.

Shares of ICL were up 2.6 percent at 47.40 shekels in afternoon trading in Tel Aviv.

“The fundamentals for the fertiliser industry and strength in commodity (priced) supports a bullish outlook for the second half of 2012,” said Evgenia Molotova, an analyst at Citi, adding that as prices rise “this should mean sequential EPS improvement.”

BETTER RETURN

Prices of crops such as soy, wheat and corn have risen between 20 and 40 percent in global markets since early June - just before the end of the quarter - mainly driven by supply shortages due to drought in the United States.

Higher prices for produce give farmers a better return on expenses such as fertiliser.

K+S AG, the world’s fourth-largest potash supplier, said on Tuesday that the current demand for potash and magnesium products should continue in coming months.

ICL posted second-quarter net profit of $407.3 million, above a Thomson Reuters I/B/E/S estimate of 405.5 million but below profit of $426.2 million in the year earlier period. The company cited higher financial expenses and taxes for the decline and analysts.

Revenue grew 27 percent to $1.96 million, compared to a forecast $1.95 million. During the April-June period, ICL said it sold 1.5 million tonnes of potash, up 12 percent on the year.

Its industrial products division showed a drop in quarterly revenues as the global economic downturn reduced sales of electronic goods and subdued demand for its flame retardants.

ICL said it would pay a second-quarter dividend of 22 cents per share, or a total of $285 million, up from 16 cents the previous quarter.

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