Clal Finance downgrades Israel Chemicals

Clal Finance cites questions about demand in China and India in 2013 and the gap that has opened compared with the company's peers.

Clal Finance today cut its recommendation for Israel Chemicals Ltd. (TASE: ICL) to "Market perform", saying that the share price has reached its target range, after rising by 20%.

Clal Finance analyst Jonathan Kreizman says, "Despite our position that Israel Chemicals is better than the sector, there are questions about demand in China and India in 2013 and the gap that has opened compared with the company's peers in the sector causes us to take a neutral position with regard to the share price."

Kreizman says that, in contrast to the stagnation by Israel Chemicals' main competitors, Potash Corporation of Saskatchewan Inc. (NYSE; TSX: POT) and Mosaic Company (NYSE: MOS), since the end of June, the share price of Israel Chemicals has risen by 20%. "Nonetheless, we see underperformance by the potash sector compared with the rally in corn and wheat, which have risen by 17% over the same period. Since it is not clear if and when the correlation with agricultural commodities prices will resume, we find it difficult to see triggers for Israel Chemicals' share price that are not related to macroeconomic developments and/or increased quantities."

Kreizman adds that the biggest importers, China and India, are again postponing orders, and the economic environment in other markets is too weak to generate strong growth in 2013. He believes that larger and cheaper Chinese domestic potash production on top of large inventories will continue to affect exports to it.

"The macroeconomic environment and the weakness in the potash market are already causing the first major cracks in prices, which recently resulted in lower prices, even in strong markets like Brazil. In addition, huge investments in capacity while the market is stagnating raise concern that the potash industry is facing surpluses, which will only worsen when K+S AG's (DAX: SDF) Greenfields mine begins production," says Kreizman.

Kreizman kept its potash production quantities for 2013 basically unchanged but cut his average price to $461 per ton. He expects Israel Chemicals to report very strong third quarter results, due to Indian demand as it clears inventory, but that this will be temporary, and will not affect the company's pricing.

Published by Globes [online], Israel business news - - on October 9, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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