Canadian fertilizers company The Potash Corporation of Saskatchewan Inc. (PotashCorp) (TSE: POT) released poor results for the first quarter of 2016 last week. The company continues to suffer from low fertilizer prices, and its revenue fell 27% to $1.21 billion, while its net profit slumped 80% to $75 million (it reports in US dollars).
PotashCorp's share price fell sharply at the opening of trading last Thursday, but quickly recovered. In the past three months, its share price has risen 9%, despite poor results in 2015 and the difficult state of the global potash market.
Israel Chemicals (TASE: ICL: NYSE: ICL) has seen its share price rise by 15% in the past three months. How will PotashCorp's results affect it? Excellence Nessuah senior analyst Gilad Alper told "Globes", "PotashCorp's financials were disappointing mainly because investors thought there had been some recovery in the potash market in the US and Brazil. The recovery, if there is one, now looks much slower than was expected. In Brazil, prices are not rising above the $240 threshold and are not pulling up US prices.
"There is usually a premium in the US over prices elsewhere, and now we are not seeing this, which is a worrying phenomenon, although it's hard to draw conclusions from it at this stage."
Are there consequences for the fertilizers market in China?
"At present, hardly anyone is selling to China. The Chinese are using their stocks, and everyone continues to wait for the signing of ICL's new contract with China. There were hopes that prices would rise in this contract, and that there would be a new floor for the market, but at the moment it doesn't look that way.
"If a price of $260 per ton is set in China, that will be considered good. Today, it looks as though the entire potash market will continue to suffer from a difficult situation for the whole of 2016."
What does that mean for ICL?
"The first quarter looks as though it is going to be very bad in comparison with the second half of last year. The prices we shall see in this quarter are spot prices, which means much lower prices than those of the second half of 2015, and volumes can also expected to be much lower. ICL's performance will decline considerably. There will be a high double-digit drop in revenue and in profit as well for ICL in the quarter."
When do you think the company will sign the contract with China?
"That's very hard to say, because they are constantly deferring it. In previous years, it was usually in March, but you have to understand that this market is very, very volatile, both in prices and other factors."
So it's not possible to talk about the light at the end of the tunnel.
"From a macro point of view, there's a recovery in commodities and the dollar is declining, and so PotashCorp and ICL's share prices have risen recently. Potash is part of the commodities market, and if the dollar continues to decline that will have a positive effect on commodities and on potash as well, and in that sense I'm optimistic, taking a macro view. In the short to medium term, the macro factors, that is, the weak dollar as a result of interest rate expectations in the US, will probably outweigh the bad basic numbers of the world fertilizers market, and it could well be that PotashCorp and ICL's share prices will continue to rise."
Published by Globes [online], Israel business news - www.globes-online.com - on May 2, 2016
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