IBI Investment House analyst Yuval Zehira has reiterated his “Buy” recommendation and NIS 46 target price for Israel Chemicals Ltd. (TASE: CHIM) because of a possible new supply/demand balance in the global potash market.
The potash shortfall created by the sinkhole at a mine owned by Russia’s largest potash producer JSC Uralkali (LSE; RTS:URKA) has spread towards the railroad used by JSC Silvinit, the country’s second largest producer, forcing it to suspend potash shipments. Silvinit produces 10% of the world’s potash.
It is not clear at this time whether Silvinit will halt all deliveries, or if the halt is temporary. The company will have to rebuild the affected track, which could take months and create a potash shortage.
Other potash producers have announced that they will reduce production until the situation clarifies. Announcements to this effect have been made by the world’s largest potash producer Potash Corporation of Saskatchewan (NYSE; TSX:POT), as well other Canadian producers Mosaic and Agrium Inc. (NYSE:AGU).
Zehira notes that the recently set target price assumed a significant breakthrough in 2008 in Israel Chemicals’ profits because of rising potash prices. Potash Corporation said in a conference call on Thursday that it believed that potash prices will not stabilize, and that 2008 looks set to be an even better year than can be predicted at the moment.
Leader Capital Markets analyst Yoav Burgan is more cautious, and believes that Potash Corporation’s assessment involves spin. “Note the conduct of Potash Corporation’s share on Thursday beyond the plunge in the share, which fell 10% in early trading, but which rose 5% by the close,” he says. He adds that the drop followed the publication of a poor financial report for the third quarter, but that the share soared after the company said in the conference call that it was suspending new potash sales until further notice.
Burgan believes that Israel Chemicals’ momentum will continue for another quarter or two, but warns that the potash industry shares are close to peaking, and could fall.
Psagot Ofek Investment House also sounds a cautious note. “Israel Chemicals, which is not a large marketing corporation, is unlikely to generate sales in our opinion, but it will undoubtedly benefit from a further rise in prices.”
Shares of Israel Chemicals rose 6.4% to NIS 42.60 today in TASE trading.
Published by Globes [online], Israel business news - www.globes.co.il - on October 28, 2007
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