Psagot downgrades Israel Chemicals

"We see higher risk in Israel Chemicals today."

Shares in Israel Chemicals Ltd. (TASE: ICL) fell 1.3% by midday today to NIS 62.39, after Psagot Investment House Ltd. analyst Limor Gruber downgraded the company, citing "a narrowing of the discount and reduced likelihood of another major jump".

Gruber added, "We see higher risk in Israel Chemicals' share today, especially taking into account that the upside in the target price has substantially narrowed following the recent rise in the share price."

Psagot lowered its recommendation for Israel Chemicals to "Market perform" from "Buy", although it reiterated its 12-month target price of NIS 67.50, a 7% premium on yesterday's closing price of NIS 63.23.

Gruber says that since Psagot raised its recommendation for Israel Chemicals in March 2010, on the strength of signs of tightening in the commodities market and growing demand for fertilizers, the company's share price rose 37%, compared with a rise of 10% for the leading Tel Aviv Stock Exchange (TASE) indices over the same period.

Prices for agricultural commodities soared in 2010: the price of corn rose 91%, wheat rose by 64%, and soy beans rose 42%.

Gruber says that said that the world's weather last year could be described as a "perfect storm". The La Nina caused problematic weather patterns worldwide: drought in South America, Canada, Russia, Ukraine, Southern Europe, and China; and floods in Southeast Asia. "This was extraordinary, and there is little chance of it being repeated for a second consecutive year. Therefore, the chances of another jump in prices for agricultural commodities are lower than the risk of a sell-off."

Gruber adds, "We mustn’t forget that a large part of the rise in commodities prices was due to speculation, and was supported by the US stimulus plan and the weak dollar. Updated growth forecasts by the Fed caused sources there to say that it will soon be possible to ease the stimulus plan. To this can be added the tightening measures by China, which are likely to be accelerated, and the ongoing tightening measures by India."

Gruber says, "A critical development in the potash industry in the coming weeks will be the price at which contracts with India are signed. Although the base price for subsidies was updated by $40 to $390 per ton, it is still lower than the level in the contract with China. The question, of course, is whether the Indian government will again raise the subsidy or whether importers will close at a higher price, which will be rolled over onto farmers. The second possibility is liable to affect demand. If a contract is signed for less than $420 per ton, it will be a disappointment, and will be liable to cause pressure on global potash prices. A delay in signing the contract could also cause a slowdown in the industry."

Published by Globes [online], Israel business news - www.globes-online.com - on February 21, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018