ICL Reports Q4 & Full Year 2017 Results

TEL AVIV, Israel, Feb. 14, 2018

Fourth quarter sales of $1.36 billion compared to $1.34 billion for Q4 2016 –

– Operating income of $189 million compared to $72 million in Q4 2016. Adjusted operating income of $168 million, an increase of 20% from $140 million in Q4 2016 –

– Strong performance in Q4 driven by recovery of the potash market and reduction in G&A –

– Annual sales of $5.42 billion compared to $5.36 billion for 2016 –

– Annual operating income of $629 million compared to operating loss of $3 million for 2016. Adjusted operating profit increased by 12% to $652 million despite challenging commodity businesses environment –

Completion of water desalination company divestment and cash flow generation fueled $231 million reduction in net debt. Further reduction expected by mid-2018 after additional divestments are completed –

ICL(NYSE: ICL) (TASE: ICL), a leading global specialty minerals and specialty chemicals company, today reported its financial results for the fourth quarter and year ended December 31, 2017.

Sales for the fourth quarter were $1,361 million compared to $1,338 million for the comparable period in 2016. ICL's sales for 2017 were $5.42 billion compared to $5.36 billion for 2016. The Company reported operating income of $189 million compared to $72 million for the fourth quarter of 2016, an increase of 160%. Adjusted operating income increased to $168 million from $140 million in the prior-year quarter, an increase of 20%, supported by the recovery of the potash market and a reduction in G&A. Due to ICL's balanced business structure, strong potash results in the fourth quarter compensated for off-season Specialty Solutions' results. Adjusted EBITDA for the fourth quarter was $276 million compared to $264 million in the prior-year quarter.

Operating income for 2017 increased to $629 million compared to an operating loss of $3 million in 2016. Adjusted operating income in 2017 increased by 12% to $652 million, supported by higher potash prices and the strong performance of ICL's Advanced Additives and Industrial Products business lines, as well as a reduction in G&A expenses. The Company recorded increased sales and operating margins in 2017, despite internal and external challenges that included continuing pressure on phosphate fertilizer prices and a short-term increase in production costs at ICL's UK and Spanish operations as the Company worked to optimize its mineral assets. ICL's results were also impacted by reduced dairy protein sales at ICL Food Specialties and the short-term slowdown in production at ICL Rotem's phosphate operation in Israel, resulting from the spill at one of its phospho-gypsum ponds. However, the execution of prudent capital allocation and successful divestments contributed to the Company's solid financial position. By focusing on its core mineral chains, ICL's strategy is designed to improve the competitive position of its mineral assets and grow its specialty businesses. (See “ICL's Strategic Direction” below.)

ICL's Acting CEO, Asher Grinbaum, stated, “I am proud to report that ICL demonstrated achievements across many financial parameters in 2017 – in sales, operating margins, net profit, free cash flow and net debt. In addition to increasing our financial stability during 2017 by controlling CapEx, optimizing working capital and reducing our G&A expenses, we significantly reduced losses at our YPH JV in China, successfully continued our process of divesting from low-synergy assets, including ICL's holdings in IDE Technologies and our fire safety and oil additives businesses, for an aggregate $1.2 billion. We also grew our Specialty Fertilizer business despite commodity headwinds and accelerated the transfer of production at ICL UK from potash to Polysulphate, growing Polysulphate sales by around 50%. In addition, we entered into a long-term, beneficial agreement for the supply of natural gas to power our Israel-based facilities. A major overhang on our shares was also removed following Potash Corp's sale of its entire stake in ICL in January 2018. Our ongoing efforts to strengthen ICL's financial position and to balance our specialties and commodities businesses, combined with our unique mineral assets and value chain, unparalleled global production and logistics platform and dedicated and talented 13,000 employees, position ICL well to achieve further growth and increased value in 2018 and the years ahead”.

ICL's Chairman, Mr. Johanan Locker, stated, “ICL's results in 2017 demonstrate management's successful execution of the Board's strategic direction. ICL has successfully divested low-synergy assets which have helped to reduce debt, enhance financial stability and create additional resources for future growth. Looking forward, ICL will focus on its core businesses aiming to further strengthen the competitiveness of its existing mineral assets while expanding our specialty businesses. In addition, ICL will combine its capabilities in the agriculture market with the growing use of precision agriculture, to significantly expand its specialty solutions portfolio to this market. The Company's successful efforts increase our confidence in our ability to weather market challenges while building value for our stakeholders.”

FINANCIAL RESULTS

10-12/2017

10-12/2016

1-12/2017

1-12/2016

$

millions

% of

sales

$

millions

% of

sales

$

millions

% of

sales

$

millions

% of

sales

Sales

1,361

1,338

5,418

5,363

Gross profit

429

32

416

31

1,672

31

1,660

31

Operating income (loss)

189

14

72

5

629

12

(3)

Adjusted operating income (1)

168

12

140

10

652

12

582

11

Net income (loss) – shareholders
of the Company

155

11

32

2

364

7

(122)

Adjusted net income – shareholders
of the Company (1)

142

10

114

9

389

7

451

8

Adjusted EBITDA (2)

276

20

264

20

1,059

20

1,051

20

Free cash flow (3)

137

127

405

346

(1) See “Adjustments to reported operating and net income” in the Appendix below.

(2) See “Adjusted EBITDA for the periods of activity” in the Appendix below.

(3) See Appendix below for reconciliation.

Results analysis:

Sales

Expenses

Operating
income

$ millions

Q4 2016 figures

1,338

(1,266)

72

Total adjustments Q4 2016 *

68

68

Adjusted Q4 2016 figures

1,338

(1,198)

140

up

Quantity

(64)

66

2

up

Price

53

53

up

Exchange rate

34

(51)

(17)

down

Raw materials

(6)

(6)

down

Energy

(7)

(7)

down

Transportation

10

10

up

Operating and other expenses

(7)

(7)

down

Adjusted Q4 2017 figures

1,361

(1,193)

168

Total adjustments Q4 2017 *

(21)

(21)

Q4 2017 figures

1,361

(1,172)

189

* See “Adjustments to reported operating and net income” in the Appendix below

Revenue: Consolidated sales improved by around 2% to $1,361 million in Q4 2017, driven primarily by higher sales of phosphoric acid in ICL Phosphate, fire safety products in ICL Advanced Additives, specialty agriculture products in ICL Specialty Fertilizers and bromine-based industrial products in ICL Industrial Products. These improvements were partially offset by a decrease in quantities sold of phosphate fertilizers in ICL Phosphates, potash in ICL Potash & Magnesium and clear brine solutions in ICL Industrial Products. Favorable pricing in potash in ICL Essential Minerals (an increase of $20 in the average FOB price per tonne), as well as bromine-based industrial products in ICL Specialty Solutions, also contributed to the improvement relative to the prior year. In addition, sales were favorably impacted by the strengthening of the euro against the dollar.

Operating income: Operating income was positively impacted by the Company's product mix, mainly higher share of potash sales from the Dead Sea and higher sales of fire safety products compared to Q4 2016, increases in selling prices as described above and lower transportation costs due to lower quantities of potash sold. This was partly offset by the strengthening of the shekel and euro against the US dollar which increased production costs, higher sulphur prices which increased costs in ICL's phosphate value chain and higher electricity prices in Europe. The negative impact of other operating expenses derives mainly from income relating to employee benefits recorded in the fourth quarter of 2016 and a provision for an environmental claim in Israel made this quarter. This was partly offset by insurance income in Israel in the fourth quarter of 2017. The increase in annual operating income was driven primarily by operational cost-saving measures (including G&A) throughout the Company; higher sales quantities of fire-safety products, bromine compounds, phosphoric acid and specialty agriculture products; higher prices for potash and flame retardants; lower sulphur prices in ICL Rotem and lower raw material costs in ICL Specialty Fertilizers. This was partly offset by a decrease in sales of phosphate rock, phosphate fertilizers and dairy proteins, lower prices of phosphate fertilizers, phosphoric acids and specialty agriculture products, as well as higher energy and transportation costs. Exchange rate fluctuations had a significant negative impact, increasing annual operating costs by $47 million compared to the prior year, mainly due to the strengthening of the shekel against the US dollar.

Financing expenses, net: The net reported financing expenses in the fourth quarter of 2017 amounted to $25 million, compared to $19 million in the corresponding quarter last year.  Interest income of about $3 million in Q4 was recognized in connection with the resolution of a Belgium tax dispute relating to prior periods. In the corresponding quarter last year, interest expenses were recognized, in the amount of about $12 million, relating to a tax assessment agreement signed with the Israel Tax authority relating to prior years. Net adjusted financing expenses in the fourth quarter of 2017 totaled $28 million compared with an unusually low level of $7 million in the corresponding quarter last year. The increase derived mainly from an increase of about $24 million, mainly from revaluation of liabilities for employee benefits (in shekel terms) and a decrease in income in respect of changes in the fair value of derivatives.

Tax expenses: Tax expenses in the fourth quarter of 2017 amounted to $13 million. Excluding the impact of adjustments to operating income in the amount of $5 million (mainly capital gains tax from the divestment of IDE) and the resolution of a tax dispute in Belgium resulting in tax income of $25 million, which were offset by tax liabilities of $31 million following some transactions we made in preparation of the pending businesses divestitures, adjusted tax expenses amounted to $1 million. This amount is exceptionally low and does not reflect ICL's future tax rate, as taxes are calculated on an annual basis. Our effective tax rate for 2017 (as well as our estimate going forward), following certain assumptions made regarding Natural Resource Tax expenses, resulted in an annual effective tax rate of approximately 30%. ICL recorded tax income in the fourth quarter of 2017 due to an adjustment to deferred taxes following the tax reform in the US. ICL's provision in respect of the Natural Resources Tax Law (the “Law”) in Israel was prepared in accordance with the Company's best understanding as to how the Law is to be applied, including certain assumptions and interpretations regarding several material matters, including the value of property, plant and equipment in the financial statements for each mineral, as well as calculation of the operating income for each mineral. This Law is new, applies only to ICL and to date, no regulations have been issued with respect to the Law, no opinions have been published by Israel Tax Authority regarding the matter and no relevant court decisions have been rendered. It is possible that in future periods the Israel Tax Authority will have different views and argue that the Company should make additional payments, even for very significant amounts, based on alternative interpretations the Authorities may adopt regarding the proper application of the Law.

Cash flow & debt level: Fourth quarter net operating cash flow of $277 million increased by $20 million compared to the prior-year period. The increase stemmed mostly from a more moderate increase in trade and other receivables compared to the fourth quarter of 2016. Capex (cash basis)[1] increased by $2 million to $140 million. Free cash flow (see Appendix for reconciliation) totaled $137 million which brought the annual free cash flow to $405 million, compared to $346 million in 2016. Net debt as of December 31 2017, totaled $3,037 million, a decrease of $231 million compared to the end of 2016.

During the fourth quarter, Standard & Poor's Global Ratings (“S&P”) reaffirmed the Company's international corporate credit rating at BBB- with a stable outlook. The Israeli rating by S&P Maalot was also reaffirmed as ilAA with a stable outlook. These ratings also apply to the Company's debentures.

[1]The Capex (cash basis) is the cash used for “Purchases of property, plant, equipment and intangible assets” reduced by any “Proceeds from sale of property, plant and equipment” as shown in the condensed consolidated statements of cash flow to the Company's financial statements as at December 31, 2017

ICL'S STRATEGIC DIRECTION

ICL's strategic direction, as was recently refined by the board of directors, calls for our three core minerals, bromine, potash and phosphate, to remain the base of the Company's operations. ICL will continue to strengthen this base through optimization and efficiency measures that ensure the competitiveness of the Company's upstream and downstream products and grow the Company's profit margin. The growth of ICL's specialty businesses will be supported through a value based pricing strategy, bolt-on acquisitions and introduction of new, value added products and solutions.

ICL aims to leverage its position and capabilities in the fertilizer market and the growing use of precision agriculture to enhance its marketing capabilities and to provide data driven solutions. These measures will enable the development of advanced and focused agriculture solutions to an expanding customer base, including farmers.

Implementing optimization and efficiency measures to improve the Company's existing mineral assets is expected to contribute to increased production capabilities and reduction of cost per tonne, thereby ensuring the competitiveness of ICL's sites. At ICL Iberia, for instance, the Company is expected to continue the consolidation of its mining operations and to introduce an efficiency plan with the goal of making this site a solid profitable potash site even in low-cycle periods. At ICL UK, ICL is shifting its production from potash to Polysulphate which is a semi-specialty fertilizer and is expected to bring this site to break-even in the short term and to solid profitability in the medium term. At ICL's YPH JV in China, the Company has likewise reduced costs through efficiency and operational excellence measures, while accelerating the shift from commodity to specialty products. 

ICL will strive to solidify its position as a unique, flexible company that meets consumer needs by offering sophisticated, innovative and tailored solutions. 

NOTABLE DEVELOPMENTS IN 2017

  • Divestments: In June 2017, the Company announced that as part of its plan to reduce its current level of leverage and to finance growth in its specialty businesses, it would explore opportunities to divest assets having a low synergy profile with ICL's mineral chains in the amount of about $500 million or more. Within the framework of this plan, the Company sold its 50% ownership in IDE Technologies Ltd., receiving net proceeds of $167 million and a capital gain of $41 million that was recorded in Q4. In December 2017, the Company signed an agreement to sell its fire safety and oil additives (P2S5) business units to SK Capital for approximately $1 billion. The closing of the deal is expected in the first half of 2018 subject to customary conditions and the receipt of regulatory approvals.
  • Supply of Natural Gas: In December 2017, ICL announced that it entered into a long-term agreement with Energean Israel Ltd., for the supply of up to 13 BCM of natural gas to the Company, at a value of approximately $2 billion over a period of 15 years beginning in the second half of 2020. The agreement marks an important milestone in securing a consistent supply of gas to the Company's Israeli facilities at a competitive price compared to its current gas supply agreements. The agreement is expected to fully meet the Company's gas requirements, including the operation of Dead Sea Works' new 240 MW power stations in Sodom, which is expected to commence commercial operation in the first quarter of 2018. As of today, the Company is one of the largest consumers of natural gas in Israel, and the Energean agreement is consistent with the Company's efforts during recent years to transition to cleaner energy sources, limit pollution and protect the environment. The agreement is subject to all required approvals, including approval of the Company shareholders, at a meeting scheduled to be held on February 22, 2018.
  • Phosphate Mining at Barir Field: In December 2017, Israel's National Planning and Construction Council approved a directive for ICL to prepare a detailed plan for mining the Barir Field in Israel's Negev region. This is an important strategic milestone for ICL Rotem, as well as the economy in Israel's southern region, in view of ICL's gradually dwindling phosphate reserves. The Company is working to comply with all the requirements that will be prerequisites for obtaining the mining permit and is cooperating fully with the authorities. The Council's approval is vital for the continuation of the phosphate industry operation in the Negev in the coming decades as well as for safeguarding the livelihoods of thousands of families throughout the region.
  • ICL Rotem: ICL is taking actions to explore solutions for, among other things, restoration of the phospho-gypsum water ponds in the short-term and long‑term and rectification of any environmental impacts, to the extent required, from the phospho-gypsum water spill following the partial collapse of the dyke at Pond 3 at ICL Rotem in June 2017. ICL is working in full coordination and close cooperation with Israeli governmental and regulatory bodies. The Ministry of Environmental Protection has instructed the Company to submit a plan relating to the future operation of the phospho-gypsum water ponds, and the Company is currently discussing the plan with the Ministry which will serve as the basis on which a permanent permit will be received for the operation of Pond 4. In addition, in December 2017, a building permit was received from the Local Planning and Building Board for construction to raise the dyke and use Pond 4. On January 7, 2018, a permit was granted for excavation work and repair of the infrastructure at Pond 5. As of the date of this release, the Company is acting to obtain the additional required permits for Pond 5, the operation of which is expected to commence in May 2018. On January 9, 2018, an appeal was filed by Adam, Teva V'din (Man, Nature and Law) – the Israeli Association for Environmental Protection, to the District Planning and Building Appeals Committee of the Southern District, against the Local Council and Rotem. In its appeal, Adam, Teva V'din argues that flaws occurred in the procedures for granting the permit for Pond 4 or in the discretion of the Local Committee that approved the relief and granted the permit. To the extent the claims made in the appeal are sustained in a manner that would cause expiry of the building permit, Rotem may have to halt the operation of part or all the production facilities at its plant in the Negev, pending receipt of a new building permit. However, the Company estimates that the chances that such claims are sustained, in whole or in part, are low. On February 5, 2018, the Company filed a request with the Appeals Board for dismissal and rejection of the appeal.

    ICL is committed to environmental responsibility, and for years has worked closely with Israel's environmental authorities to maintain nature reserves in Israel's Negev region that are in proximity to its facilities.

  • Salt Harvest/Pumping Station at the Dead Sea: In October 2017, ICL signed an agreement in the amount of $280 million for the first stage of the salt harvesting project, with Holland Shallow Seas Dredging Ltd., a contracting company that will build a special dredger designed to execute the salt harvesting project. The dredger is expected to begin operating in the first half of 2019. In addition, during the third quarter, ICL's Board approved an investment of about $250 million to build a new pumping station at the Dead Sea, expected to be completed in 2020.
  • Sale of Nutrien's holdings in ICL: On February 5, 2018, Nutrien Ltd. announced in its Q4 2017 report that its wholly-owned subsidiary, Potash Corporation of Saskatchewan Inc., on January 24, 2018, completed the sale of its 13.77% stake in ICL's shares for net proceeds of $685 million. The sale increased the public's direct holding of shares in ICL by about a third, to about 54% of outstanding shares.   

REVIEW OF OPERATING SEGMENTS

Specialty Solutions Segment

The Specialty Solutions Segment, which serves diversified industrial markets, concentrates on achieving growth through a highly-tailored customer focus, product innovation and commercial excellence. The segment includes three business lines: ICL Industrial Products, ICL Advanced Additives and ICL Food Specialties.

Business highlights:

ICL's Specialty Solutions segment accounted for 48% of ICL's overall sales (before elimination of inter-segment sales) and operating income attributed to segments in the fourth quarter of 2017. Results were supported by higher sales along ICL Advanced Additives' P2O5 value chain and an increase in quantities sold in its fire safety business resulting from off-season wildfires in California, as well as from the segment's value-oriented pricing strategy and expansion of its customer base. Supportive bromine market conditions in the fourth quarter led to higher sales quantities of bromine-based flame retardants in ICL Industrial Products, offset by a decrease in the sales of clear brine solutions. ICL Food Specialties recorded lower sales to Russia and lower dairy protein sales to a major customer; however, the business line expects significant improvement in 2018 resulting from customer diversification and pricing initiatives. While the segment's operating income was positively influenced by increased quantities sold and selling prices, these were offset by a provision for bad debt, an increase in royalties paid as a result of increased sales and inventory write-offs during the quarter.

$ millions

10-12/2017

10-12/2016

1-12/2017

1-12/2016

Industrial Products

303

283

1,193

1,120

   Sales to external customers

298

279

1,179

1,111

   Sales to internal customers

5

4

14

9

Advanced Additives

199

173

877

798

   Sales to external customers

186

157

824

732

   Sales to internal customers

13

16

53

66

Food Specialties

151

151

596

659

   Sales to external customers

149

150

585

650

   Sales to internal customers

2

1

11

9

Setoffs

(2)

(6)

(16)

(24)

Total segment sales

651

601

2,650

2,553

Operating income attributable to the segment

114

121

554

534

ICL Industrial Products

  • ICL Industrial Products benefited from stricter environmental regulations that affected local production output in China and, as a result, improved conditions for bromine and bromine-based compounds. Currently, Chinese production has resumed, and the winter shutdown has mostly not been implemented. Bromine prices are slightly down since mid-January. The bromine business environment is expected to remain stable in 2018.
  • Market demand for bromine-based flame retardants remains stable. However, ICL Industrial Products is benefitting from lower bromine-based flame retardants production in China as a result of the limited local bromine production and higher bromine prices.
  • Phosphorous‑based flame retardants prices continue to be favorable compared to Q4 2016.
  • Operating margins were negatively impacted by lower sales of clear brine solutions.
  • The unit experienced higher profitability for its magnesia products as a result of higher selling prices and by focusing on applications with higher profit margins.

ICL Advanced Additives

Advanced Additives' sales performance significantly exceeded the corresponding quarter last year, positively impacted by several factors:

  • Global sales of salts and acids increased by 9% compared to Q4 2016 as a result of demand from new customers in Europe which offset lower demand from existing customers as a result of a new pricing policy. Continued growth of the P2O5 business in China is being driven by the YPH JV's continuing increase of local market share and of its customer base. The Brazilian market saw stable demand for phosphate salts and higher acid exports to other South American countries while in North America, year-over-year revenues declined due to competitive price pressure. Average P2O5 prices were slightly down compared to Q4 2016 but sequentially higher as a result of a new pricing policy.
  • Extended wildfire activity in North America created higher demand for fire safety products.
  • Oil Additives (P2S5) sales increased versus Q4 2016 mainly due to higher demand from a customer in North America, partly offset by plant turnarounds of other key customers in Europe and North America.
  • During the quarter, ICL announced the sale of its Fire Safety and Oil Additives (P2S5) businesses to SK Capital for approximately $1 billion. The sale is expected to close in the first half of 2018. (See “Divested Businesses Sales and Operating Income” in the Appendix.)

ICL Food Specialties

  • ICL Food Specialties' revenue in Q4 2017 was stable compared to Q4 2016 due to higher volumes in the food phosphates and multi-ingredient blends businesses, which offset lower sales to Russia as a result of the transition to a new distributor and lower dairy protein sales to a major customer. Q4 sales are usually lower than the first three quarters of the year due to seasonality.
  • ICL Food Specialties' dairy business continued to recover during Q4 2017 compared to the first half of the year although revenues were below the corresponding quarter in 2016. Over the last six months the dairy business has diversified its customer base, and has focused its efforts on the organic infant food industry, which is expected to contribute to the growth of the business line in 2018.
  • During Q4, ICL Food Specialties' phosphates business experienced an increase in costs of certain raw materials. The business line expects to offset these increases through higher selling prices.
  • The demand for clean-label, vegan and lactose-free food products in the European market continues to grow. ICL Food Specialties' integrated solutions and capabilities are well positioned to respond to this trend. As a result, sales volumes of integrated solutions and new products continued to increase. In addition, the business line modified its organizational structure from regional-based to market segment-based to enable it to focus on developing new products and tailor-made solutions for targeted customers. This will strengthen the business line's go-to market capability and contribute to cost efficiency.

Results of operations for the period October – December 2017

Sales analysis

Industrial Products

Advanced Additives

Food Specialties

Setoff

Segment Total

$ millions

Total sales Q4 2016

283

173

151

(6)

601

Quantity

6

17

(7)

3

19

up

Price

9

4

1

(1)

13

up

Exchange rate

5

5

6

2

18

up

Total sales Q4 2017

303

199

151

(2)

651


Operating income attributable to the segment analysis

$ millions

Total operating income Q4 2016

121

Quantity

7

up

Price

13

up

Exchange rate

(2)

down

Raw materials

(1)

down

Energy

(1)

down

Transportation

1

up

Operating and other expenses

(24)

down

Total operating income Q4 2017

114

Contribution from higher sales quantities deriving from fire safety and bromine-based flame retardants as well as higher prices in the bromine value chain and of specialty acids was more than offset mainly by an increase in operating and other expenses due to a provision for bad debt, inventory write-off, higher royalty payments in the bromine value chain and an income related to employee benefits recorded in Q4 2016.

Essential Minerals Segment

The Essential Minerals segment, which serves the agricultural market, includes three business lines: ICL Potash & Magnesium, ICL Phosphate and ICL Specialty Fertilizers. The segment focuses on delivering high-quality agricultural products, while continuously driving efficiency, process innovation and operational excellence.

Business highlights:

  • In the fourth quarter, the Potash and Magnesium business line recorded growth in operating income supported by strong demand and tight supply in the potash market. For the year, the business line achieved record annual sales volume to Brazil and continued to restructure its European sites to optimize their competitiveness and ensure sustainability. Moderate price recovery in the Phosphate business line in Q4 was initially driven by raw material cost increases, but continued into 2018 as a result of increased demand. However, production slowdown of several weeks at ICL's YPH JV and ICL Rotem in the quarter offset the contribution from the market's recovery. The Specialty Fertilizers business line achieved record fourth quarter results led by growth in specialty agriculture which benefited from strong demand for its products in Europe, Asia Pacific, the Middle East and Africa. An organizational shift and efficiency measures also contributed to Specialty Fertilizers' growth in sales and improved operating margins.
  • Based on the World Agriculture Supply & Demand Estimates (WASDE) report published by the US Department of Agriculture (USDA) in February 2018, the grain stock to use ratio for 2017/2018 agricultural year is expected to decrease slightly to 24.7%, compared with 25.3% at the end of the 2016/2017 agricultural year, and compared with 25.7% in the 2015/2016 agricultural year. This level is still relatively high and as a result grain prices are at a ten-year low level, adversely affecting farmers' incentive to purchase fertilizers. However, the affordability of fertilizers is still favorable, which is reflected in good demand for potash.
  • According to the UN's Food and Agriculture Organization (FAO) forecast from December 2017, global cereal production in 2017 amounted to 2,627 million tonnes, 16.8 million tonnes (0.6%) higher than 2016. The production of coarse grains amounted to 1,371 million tonnes, up nearly 24 million tonnes (1.8%) from 2016.

Potash & Magnesium

Business environment overview

  • Potash prices continued to firm moderately during Q4 2017, supported by healthy demand. According to CRU (Fertilizer Week Historical Prices, 18/1/2018), the average CFR Brazil price for Q4 was $280 per tonne, 5% higher than in Q3 2017, and 19% higher than in Q4 2016.
  • According to customs data, China imported about 7.5 million tonnes of potash during 2017, a 10.5% increase over 2016. ICL completed its shipments under 2017 contractual obligations by the beginning of February 2018.
  • According to the FAI (Fertilizer Association of India), potash imports during 2017 amounted to 4.3 million tonnes, a 25% increase over imports in 2016.
  • According to ANDA (Brazilian National Fertilizer Association), potash imports into Brazil during 2017 amounted to 9.23 million tonnes, a 5% increase over 2016, and an all-time record for the country.
  • Three fertilizer companies are currently in the process of commissioning new (Greenfield) mines. However, currently their impact on the market is negligible due to delays and ramp-up time.
  • Global demand for magnesium remains constrained in China, Brazil and Europe while prices are under pressure due to increased Chinese exports as well as imports from Russian, Kazakh and Turkish producers to the US. However, there appears to be a resumption of aluminum production in the US, where aluminum producers constitute 37% of primary magnesium (pure magnesium and primary-based-alloy magnesium) consumers. This is expected to improve the US magnesium market. 

Business highlights

  • ICL shipped about 1.3 million tonnes of potash to Brazil in 2017, marking record annual sales for this market.
  • The Company continues to restructure its European mineral assets to optimize their competitiveness and ensure sustainability. Following the quarter, ICL UK announced that potash production at its Boulby mine is expected to end in mid-2018 as it completes its transition to mining Polysulphate. In 2018, ICL plans to produce about 600 thousand tonnes of Polysulphate, increasing to about 800 thousand tonnes in 2019. The transition from potash to Polysulphate production includes the reduction of about 200 employees during 2018, in addition to the reductions made in 2016 and 2017. In addition, in mid-2018, ICL expects to begin producing PotashpluS, a compressed mixture of Polysulphate and potash with higher potash concentration, which is expected to contribute to Polysulphate sales. In addition, during 2018 ICL is expected to continue its site consolidation project at its potash mines in Spain, while implementing an efficiency plan to reduce costs already in 2018. ICL also expects to decrease its production costs per tonne at ICL Dead Sea in 2018 as a result of improved production rates.
  • After assuming full responsibility for construction of the new power station in Sodom, ICL Dead Sea is now in the test run stage and awaiting receipt of final regulatory approvals. The power station is expected to reduce en

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