Haifa Chemicals Ltd. is trying to pressure Israel Chemicals Ltd. (TASE: ICL) to lower its prices for potash. In a letter ostensibly directed at Haifa Chemicals' employees, and which was sent to the media, CEO Nadav Shachar tries to explain why he shut down the companies plants in Haifa and in Mishor Rotem in the Negev.
The letter is apparently aimed at complaining about potash prices. Shachar writes, "Over the years, we became a leading Israeli exporter with a turnover of hundreds of millions of dollars a year. We do business in more than 100 countries, and unique Israeli technology is a source of pride for us, our thousands of Israeli employees, and for the country as a whole."
Shachar goes on to say, however, "As you know, the cost of potash is a major component in the production cost of the company's products. In the past five years, the price of potash has climbed from $94 per ton to over $600 per ton - a rise of over 600%. Most of this rise occurred in the past year, including a doubling of the price in January 2009 alone.
"This rise in the price of potash has eroded the company's competitiveness, and of course does not let us grow, or even maintain our level, due to the severe global crisis."
Shachar added, "The Israeli government has given Israel Chemicals unit Dead Sea Works exclusive potash mining rights, turning it into a monopoly. Nonetheless, in 2006, the government decided to remove price controls over potash, which has enabled Israel Chemicals in the past three years to raise its price for industry by about 400%.
"In recent months, we have held intensive talks with the management of Dead Sea Works in order to reach a potash purchase agreement. Regrettably, even though during this period vast quantities of potash have accumulated at Sodom (more than two million tons) and there are no restrictions on the availability of potash, Israel Chemicals has refused to sell us potash at a reasonable price that would make it feasible for us to continue the manufacture and marketing of our products."
Shachar says, "I hope that the Israeli government will act quickly on the basis of its authority to compel the potash monopoly to lower its prices so that our products will again be competitive in the international markets where we operate, and that the unacceptable and immoral situation in which many companies and their employees are not allowed to benefit from Israel's natural resources, because a private monopoly denies them access, will cease."
Shachar concludes, "Regrettably, we are forced to shut down production lines at the company's factories in Haifa and at Mishor Rotem in order to persuade Israel Chemicals to sell us potash at a reasonable price."
Dead Sea Works said in response, "We reject outright the claims made by Haifa Chemicals. They are sheer populism and divorced from reality."
Dead Sea Works noted that it has supplied potash to Haifa Chemicals for decades at a price based on a fixed formula of the price for potash in international markets and trends. In the past, Haifa Chemicals once disputed the price determined by the formula, and a neutral arbitrator ruled that Dead Sea Works was in the right.
Dead Sea Works added that the companies failed to reach a deal in recent negotiations because Haifa Chemicals demanded an extraordinary massive discount, which Dead Sea Works found to be unacceptable. During 2008, Haifa Chemicals enjoyed a huge competitive advantage because of the price for potash based on the formula. The price for potash it was offering Haifa Chemicals for the second quarter included an additional discount, which Haifa Chemicals rejected for its own reasons.
Published by Globes [online], Israel business news - www.globes-online.com - on April 19, 2009
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