In a new survey on the global fertilizer industry, UBS give Israel Chemicals Ltd. (TASE: CHIM) a “Buy1” recommendation with a target price of NIS 39, a 15% premium over the market price. UBS cites high and growing demand for potash and phosphates, driven in part by US demand for biofuels, and tight supply, which are boosting prices for these fertilizer products.
Regarding the fertilizer market, UBS cites Israel Chemicals’ projection that its revenue growth will continue this year and into 2008, driven by price hikes in its fertilizer products. Sales in its fertilizer market climbed $452 million in the first quarter of 2007, up 57% from the same period last year. The share is up 37% year-on-year.
UBS says, “Biofuel demand for crops has translated into significant demand for fertilizer products this year. Phosphates and potash in particular have experienced tight supply and this has led to an escalation in pricing…In many respects, we believe biofuels have established an energy fundamental linkage into fertilizer demand. Continued demand pressure in this area will, in our opinion, increase the likelihood of acquisition activity as a route for securing access to mineral assets. Potash in particular is well consolidated, with the top three players owning most of the world’s reserves of the mineral.”
Regarding phosphates, which Israel Chemicals produces, UBS notes “diammonium phosphate (DAP) prices have nearly doubled this year. The US biofuels market is having global impacts on DAP prices… Phosphate rock suppliers have also escalated prices to take advantage of downstream increases in DAP.” Furthermore, Indian demand will probably outstrip local supply. As a result, “DAP margins are likely to remain healthy for two to three years.”
As for potash, UBS says, “In June, Israel Chemicals signed a deal to supply 1.1 million tons of potash between July 2007 and May 2008. The price agreed has reaffirmed the benchmark increase of $50 set earlier in the month at the International Fertilizer Industry Association (IFA) conference in Turkey. The buoyant market has driven potash demand to maximum levels…Brazil is now moving into its peak agricultural season and this will further increase tightness in the market.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 10, 2007
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