Dec. 03--Today's announcement by Canada's Potash Corporation of Saskatchewan Inc. (NYSE; TSX: POT) that it was laying off 18 percent of its workforce in Canada, the US, and Trinidad, and that it was suspending some operations, is bad news for Israel Chemicals Ltd. (TASE: ICL).
"Despite confidence in the long-term drivers of our business, a significant portion of fertilizer demand comes from developing markets where growth has been less robust than expected. This sluggish environment has been most visible in our potash and phosphate businesses, and has contributed to challenging market conditions," said Potash Corporation.
Potash Corporation owns 13.8 percent of Israel Chemicals, its second largest shareholder after Israel Corporation (TASE: ILCO), which owns 52.3 percent. In late November, Israel Chemicals sent layoff notices to 130 employees of its Rotem Amfert Negev unit.
"This is a clear statement that the crisis in the potash market is deep and prolonged," says Excellence Brokerage senior analyst Gilad Alper. "When the company that was always the most optimistic in the industry raises its hands, there are really no reasons for optimism in the short term.
"Potash Corporation's announcement also reminds us that the breakup of the Russian potash cartel was the result of a crisis in demand, and was not at its own initiative. The obvious conclusion is that even if the cartel resumes operations, it will not solve the crisis. Under today's conditions, producers might be able to build quantity by cutting prices, or they can raise prices and sacrifice quantity, but the market simply cannot absorb large quantities at high prices.
"For Israel Chemicals, this is bad news. It is caught in a pincer of the global potash market on one hand and the Sheshinski II Committee on the other. Israel Chemicals will continue to be a very problematic investment in the short and medium term."