Q3 2021 Icl Group Ltd Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the I C. L Analyst Conference call. Our presentation today will be followed by a question and answer session at which time. If you wish to ask a question you would need to press star one on your telephone I must advise you that this call is being recorded today if.
If you experience any technical difficulties. Please press star zero on your telephone.
Would like to have the call of shoot first speaker today, Peggy Riley shop, Vice President of Global Investor Relations. Please go ahead ma'am.
Thank you Hello, everyone I'm, Peggy Riley Vice President of Global Investor Relations I'd like to welcome you and thank you for joining US today for a quarterly earnings conference call. The event is being webcast live on our website that I feel dash group Dot com.
Earlier today, we filed our reports with the security authorities and the stock exchanges in both the U S N in Israel.
Those reports as well as the press release are available on our website.
There will be a replay of this webcast available after the meeting and a transcript shortly thereafter the.
[noise] presentation, which will be reviewed today was also filed with the securities authorities and is available on our web site. Please be sure to review the disclaimer on slide to Ah.
Comments today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are based on management's current expectations and are not guarantees of future performance.
The company undertake no obligation to update any information discussed on this call at any time.
We will begin with a presentation by our C. E O. Mr reviewed zoeller, followed by Mister Kobe opened our CFO. After the presentation. We will open the line for Q&A session relief. Please.
Thank you Peggy and welcome everyone.
Once again I feel delivered outstanding results driven by our specialty businesses and as we also benefited from continued commodity upside.
As you can see on slide three we delivered our fourth consecutive quarter of Bottomline improvement strong performance was supported by increased demand and higher prices in most markets.
We also work to overcome higher overall costs and global supply chain challenges during pool quarter.
All four of our businesses contributed and each reported at least double digit growth in sales and EBITDA driven by strengthening specialties product portfolio and commodity tailwinds.
For innovative <unk> solutions, a recent Brazilian acquisitions he'll balance of traditional seasonality of this business.
[noise] due to all of these factors, we are raising guidance expectations and Kobe will provide more details and his comments.
Our third quarter results are on slide four and as you can see once again, we demonstrated an improvement in each chief financial parameter.
On slide five you can see your over your sales were up nearly 50 per cent well adjusted EBITDA was up nearly 90%.
We also added $70 million of operating cash flow and nearly $90 million a free cash flow.
Each of our four businesses on slide six contributed to our third quarter success and together, we were able to break an eight year quarterly profit record.
For industrial products strong and market demand remained unabated, which drove higher sales and profit.
For put US we had record third quarter production at the <unk>.
Our philosophy solutions business once again delivered a record sales and EBITDA quarter as we benefited from both higher sales volumes and prices and a <unk>.
<unk> solutions showed very significant improvement year over year, resulting from both our existing organic business and are two recent acquisitions in Brazil.
As a matter of fact, our organic I, it's business delivered double digit growth in sales and EBITDA in the third quarter as did industrial products put ash and phosphate solutions incur.
Including a recent acquisitions in Brazil, I S results were up triple digits in the quarter.
Our teams delivered these outstanding results, despite very turbulent times across the global landscape.
Well I see all benefited from commodity upside raw material prices continue to soar around the globe as did energy costs.
Not only have transportation rates continue to increase but they're also been significant disruptions to the global supply chain.
For I C. L. This is provided both challenges and opportunities.
Thanks to a advantageous production locations and global supply chain capabilities, we've been able to maintain our position as one of the world's lowest cost producers.
These advantages spend several of our businesses, including are roaming production and I would like to begin our segment review with industrial products on slide seven.
Sales of $387 million were up more than 40% versus the third quarter of 2020, and EBITDA of $121 million was up 75%.
This business continue to see strong and market demand and pricing and also delivered record quarterly cash flow.
Higher demand for flame Retardants was driven by the electronics automotive and construction in markets and we were able to leverage our recent expansion of T V B a capacity.
We also saw continued improvement in Clearbrook fluids as higher oil prices resulted in renewed oil and gas drilling activity.
Our specialty minerals business also benefited from higher demand as the supplement and pharmaceutical and markets remained strong.
On the pricing side element bromine realized record high prices in China due to strong demand for bromine compounds unlimited local supply.
Environmental regulatory restrictions in fact can P for production if triggered tight supply and rising prices of phosphorus based products, resulting in higher prices for our phosphate based products.
On the production and logistics side freight and raw material issues continue to infect the business during the quarter, even as we shipped a record number of containers in August.
While the majority of our production is at full capacity and sold through input costs remained inflated and raw material and transportation availability continued to limit our delivery capabilities.
In order to meet increased customer demand, we've procured additional either thanks for our fleet and we're also expanding production, including T V B a capacity.
We expect to be able to supply an additional 7000 metric tons of product beginning in the second half of 2022, and we plan to announce other additional capacity expansions in the months to come based on new longterm agreements.
For the fourth quarter, we expect the general continuation of these trends. However, there will be some impact from a 10 days of plant maintenance. We completed at the end of September as was in the third quarter.
Nonetheless, we expect continued strong and market demand and to benefit from the recent record behind bromine prices, which should begin to flow through to ICL beginning in the fourth quarter and continuing into 20 twenty-two as contracts to begin to reflect these higher prices.
Turning to slide eight and are put ash business, where sales of $436 million were up nearly 40% year over year and EBITDA of $125 million was up nearly 80%.
During the quarter put us market prices continued to accelerate as global demand remains strong.
Corn, soybean wheat, and rice prices were all up double digits year over year and supply remain tight.
Prices also recently accelerated for other commodities, including magnesium, which reflected the higher demand from aluminum and automotive and markets due to energy related production cuts in China in recent weeks.
To give you a little background on our middle magnesium business. The put a segment produced approximately 18000 tons in 2020, and our current annual potential production capacity is around 23000 tons.
Well, we are increasing our magnesium production there will be a lag between current market prices and have realized prices likely into the first quarter of 2022.
Also on the production side, we achieved another record in the third quarter to dead C as mentioned.
We saw an increase in production at ICL will be as well and significant high poly Sophie sales volume, which was up more than 90%.
Just last month or ICL Iberia plan was awarded the S. Agua gold for its involvement and commitment to water resource management and we are proud of the teams commitment to the sustainable use of water during.
During the third quarter, we continued to optimize the consolidation of or cabinets. This mine and this effort will continue into the fourth quarter.
Just after the quarter ended we came to an agreement to terminate our partnership with no <unk> for the sale of salts from our mining operations in Spain.
As part of this agreement ICL will pay a net amount of approximately $17 million, which will include no beans, 51% of the service to plant it sure in the joint venture and the net settlement of all additional disputes.
We expect this to result in a significant improvement of annual contribution from the Spanish operations of Ico.
At the dead Sea, we continue to work on completing the P. Nine pumping station in northern bathroom and expect commissioning to be concluded by early 20th 22.
We're also looking at other projects to help control costs and increased efficiencies.
Also the dead Sea, we recently received confirmation from the water authority that an appeal we made regarding changes in the water law has been successful and I see it will not be charged for water production within the concession area.
Turning to the logistics side of our put us business Marine transportation costs continue to increase in the third quarter and showed no signs of using however.
However, we should see additional benefit from continued higher put ash prices in the fourth quarter and into 2022.
For all our agriculture related businesses, we are tuned to concerns around farmer affordability, which are beginning to crop up.
While we are monitoring the situation. We're also actually aware of other dynamics in the marketplace, including certain global sanctions and the need for distributors to continue restocking due to global supply chain issues.
Turning to slide nine are phosphate solutions division, which reported another record quarter for specialties commodities and our white P H joint venture.
In total sales of $655 million, we're up approximately 30% year over year, well EBITDA of $148 million was up nearly 80%.
For phosphates specialties, both food phosphates, and industrial salts saw higher demand with higher volumes and prices.
Our food specialties business continued to benefit from our strong global supply chain organization, and our ability to assure customer supply.
Our industrial sorts business also saw higher seals with increased demand in most regions and industries along with higher prices.
As we've previously discussed we are further expanding our food specialties business and in December we will be commissioning, our new alternative protein plant in St. Louis [noise] I'll.
It'll be on hand for this event and hope many of you can join us if travel permits.
[noise] for commodities phosphate fertilizer sales were up on tight supply unhealthy demand.
Profitability was also up as we were able to partially offset increases and raw material costs and freight costs.
As you know a significant amount of our phosphate mining occurs in Israel, where we recently received some good news spin.
Specifically the Supreme Court has rejected motions to revoke the approval of the barrier field mining site as an area for phosphate mining the ministries of health environment Finance and energy have agreed that the plan will now move forward to the next step.
Moving on to China, where are white ph joint venture once again delivered record results due to higher prices and increased volumes.
[noise]. The J V also continue to implement efficiency measures and to maximize production of food grade W. P. A and this work is ongoing until the fourth quarter.
[noise] turning to slight 10 in our innovative <unk> solutions, a business where earlier this year, we made two acquisitions in Brazil.
The first for Laaco closed in January while the second now known as ICL America to Sue or a D. S closed on July 1st.
These acquisitions contributed to the significant improvement we saw an Ics this quarter as the balance the traditional seasonality of this business.
In total third quarter innovative acts solutions sales of $387 million were up nearly 125%, while EBITDA $55 million was up more than 300 per cent.
It is also important to note that organic sales and EBITDA Wap, approximately 20% and 70 per cent respectively.
In the third quarter specialty agriculture sales were up across all product lines and our turf and ornamental business also continues to trend positively.
Overall I S has benefited from good continued momentum due to higher crop prices. However, we also experienced challenges related to continued raw material cost inflation and ongoing global just stick issues for.
For the fourth quarter, while we expect to see year over year improvement due to higher pricing and the addition of a recent Brazilian acquisitions, we also expect growth to moderate versus the third quarter.
[noise], if you turn to slide 11, I'd like to walk you through some of our recent impactful events before turning the call over to Kobe for a review of our financials.
Throughout the year, we've continued to target sustainability, and recently announced a few innovative efforts.
First from an industrial perspective, we are now supplying the lithium iron phosphate battery market from a white peers, you joint venture in China through our specialty mono ammonium phosphate offerings.
The market for L. S. P battery technology, which offers superior safety at a lower cost and with a longer life is expected to grow to 25% right through 2034, a market value of up to $5 billion [noise].
We expect our future sales to grow significantly from a base of about $30 million in 2021.
We consider the strong demand for electric vehicles and energy storage as a significant source of potential growth for ICL and are committed to creating additional capacity to meet rapidly increasing customer demand, including but not limited to specialty M. A P products.
[noise] from a food specialties perspective, this summer, we announced the launch of ICL planet startup hub and innovation platform designed to help introduce foodtech and accurate tech startups to the marketplace.
[noise] the hubs first investment was in a I driven startup called Portera, which is designing and developing new sources of protein.
An effort, which is complementary and synergetic with our food specialties growth strategy.
[noise] well both of these innovative efforts are centered on sustainability. We recently made three more specific announcements.
As we discussed briefly last quarter, we reaffirmed our overarching commitment to sustainability by pledging to be carbon neutral by 2050.
In September we announced and you 250 million Euro sustainability linked loan, which Kobe will discuss in a few minutes.
We also continue to help our customers and their sustainability efforts and to meet the world's changing food needs by gaining organic status for our one of a kind polysulfide fertilizer based products. These.
These products are now recognized by both the E U and the U S. D. A is organic and these standards are also accepted in other regions around the world.
As you know sustainability cannot exist independently it requires many people and companies to join together.
I C. L did just that last month, when we partnered with the O C. P group from Morocco to fund sustainability programs had been going to University of the negative and Muhammad the six Polytechnic University in Morocco.
The positive developments in Israel's foreign relations opened up the possibility for us to build new relationships and create new collaborations like this one we.
We're thrilled to be taking this historic step forward with O C. P to advance sustainability research and support our local universities in their efforts to make a difference in their communities and beyond.
When it comes to sustainability, we also work with our suppliers to maximize our impact and an example of this is our expanded business partnership withheld or topsail.
[noise] beginning in the first quarter of 20 twenty-two will be taking additional potassium nitrate from topsail, which will then be fully inefficiently used to fertilize much needed crops on a global basis.
This arrangement not only expands on our existing relationship but also allows both companies to advance their sustainability efforts.
If you'll turn to slide 12, we can review some of the key takeaways from the third quarter.
As I just discussed we are progressing against our sustainability targets across the company.
I want you to know that for me personally [noise] sustainability as one of our greatest challenges.
But it also has the potential to be one of our greatest opportunities and achievements.
In order to deliver on our sustainability promise, we need to first it delivers a business and a longterm focus on driving specialties growth is key to that success.
And the more near term, we expect the reason positive momentum across all of our businesses to continue.
Market dynamics of remains strong and while there is uncertainty regarding overall global logistics, we have confidence in our strong global supply chain.
And in our ability to deliver results. Despite the somewhat turbulent times as we have been able to prove in recent months.
As a team we've made good progress executing against our strategic plan and expect to continue to do so.
As always I want to thank the entire ICL family of employees spread out across the globe for their contribution to the quarter as your everyday actions make a difference.
And with that I'll turn the call over to Kobe.
[noise]. Thank you have even to all of you for joining us today as a report and other outstanding quarter.
While you have already seen flight 14, I would like to call out just a few audition on highlights says of nearly $1.8 billion went up approximately 50 per cent eve over a year.
Oh, and EBITDA was up nearly 90 per cent and I'll be done mild gene of 23.5% was up nearly 500 basis points.
Just said they looked at the earnings per share of 17 cents was up 12 cents or approximately 270%.
[noise] operating cash flow of $273 million was up $70 million over the south quarter of last year.
And more than $30 million from the second quarter of this year we.
We have seen good catch Brooklyn to abuse from each of our business segments with industrial products delivery today called cash flow this quarter.
In the third quarter all of its eyes continued to be driven by our specialty businesses.
And as we also benefited phone commodity upstate.
If we look at that was a commodity bought us business on slight 15, you can see that while there was a significant you'll be really improvement in says an average realized surprise spilt on [noise]. We are actually in line with the info. They taught us prices of 2019, [noise] AOE Cock theorized has made site.
And for a B dot we still have room to go to reach 2019 rates, mainly due to higher logistic costs currency headwinds and I will consolidation work in Spain.
We expect to see additional upstate from recent high potash prices to flow through in the fourth quarter and April 2022.
There is still home for additional industry upside his prices are still below levels seen in 2008 and 2009.
On Slide 16, you can say that brought us isn't the only commodity he tends to recent record high prices.
While many prices are reaching rates not sinful 10 years.
The acceleration of Marine sensible station cost is fairly recent what pricing has lingered below $20000 per day for nearly a decade, they have more than doubled since the first quarter of this year.
I C. L. We have been able to leverage our advantages production locations and global supply Tin Cup abilities to maintain our position is one of the wards lowest cost producers. However, this does not mean, we have been immune to raising plus petition rates.
[noise] slide 17 shows the impact of higher pricing on your video says growth on the left side, we saw was zidane acquisitions and highest quantities.
Also positively contributing.
Four phosphate solutions says have continued to shift more towards specialties, which now comprise 53% of sales.
[noise] fully innovative solutions the organic portion of our business represented 54% of our says in the quarter, while I will basilian acquisitions contributed 46%.
On the right side of the slide you can see each of our fault businesses added more than $100 million in says in the third quarter.
Then into slide 18, you can see the significant contribution that higher prices may two EBITDA what'd, though like.
Like everyone S. We experienced higher raw material energy and transportation costs. This only diluted our product price upside by approximately 50% with the balance goes to the bottom line.
[noise] on a segment bases all forefathers businesses contributed to the year of your leaving prove meant an EBITDA.
I will admit that we'd be that ratio improved to two times from 2.6 times in the third quarter of last year as you can see on slide 19.
Oh, a night financial liabilities amounted to $2.6 billion, an increase of approximately $200 million for fiscal 2020.
And this is after we invested over half a billion dollar an hour basilian expansion. This.
This improvement was driven by both our kitchen generation and throw them wanting it these asian of some known operation on US, it's four mowell balance sheets.
We already discussed operating cash flow, but there's you can see we also saw continued goose drinks and free cash flow, which was $146 million in the third quarter.
It'll be really equal of nearly $90 million.
And finally, I would like to speak a little bit about the sustainability linked loan we announced in September.
This loan is any innovative step forward you know ICL ongoing sustainability efforts and include three sustainability performance targets. These.
The Stargate have been designed to align with our sustainability strategy and goals and each would be assessed at a specific times during the term off their own by third party certification.
[noise] as part of this effort, we are targeting an annual 4% to 5% reduction in direct and indirect scope one in scope to C. O. Two emissions reside thing for him ICL Global operation. We are also planning to expand out both dissipation integrated for sustainability and are committed to I think a significant number of.
[noise] qualified vendors each year.
In addition, we will continue to focus on inclusion equality and expanding our representation of women among our senior management, we have set a target for women to hold the police twenty-five percent of senior management roles by the end of 2024.
This is also good opportunity to remind everyone that I will continue to focus on is deep practices as well as our increase on spiritually gardening, all sustainability issues have driven us to adopt D. C. If theory folding beginning with our 20th 21 fiscal year.
[noise] with another solid quarter behind us and as we have continued to see improved margaret's conditions, we've reevaluated, our EBITDA guidance for the full year, which you can see on slide 20, we now expect an adjusted EBITDA range of between $1 billion $450 million and 1.5.
Mendoza and.
And this amount includes our bazillion acquisitions.
[noise] and with that I would like to turn the call back overthrew Aviv.
As we announced last month Kobe is leaving ico and on behalf of the entire company I Wanna. Thank him for his service and wish him the very best.
[noise] Colby's opening a new and happy chapter in his personal life and I know he and his family will be blessed together [noise].
Thank you called B for all of your hard work and dedication over the past six years. It has been a pleasure working with you.
I would also like to take this opportunity to welcome have you love is the new C F O of Ico.
Of your I'm brings more than 20 years of diverse experience from his former rules as both a C O N CFO at various global companies, including most recently as C. F O of a demo.
Of you Rahm has extensive familiarity with both a Brazilian and Chinese markets and we look forward to tapping into this experience.
[noise], thanks to Kobe guidance of Robin's inheriting strong financial organization, which I expect will continue to support our business growth as the value of Ico continues to increase and with that I would like to turn the call back over to the operator for Q&A.
Thank you we will now begin the question and answer session to ask a question you would need to press star one on your telephone to withdraw your question. Please pass the time until the hash K P stand by while we can politic Q&A.
Your first question comes from the line of Alex Jones, That's B O. A police ask you a question.
Thank you very much for taking my questions too. Please the first one is just around the the full year guidance, I guess or a sort of EBITDA luck with it implies a slight deceleration in the mid point cultural cotta.
Could you discuss the moving part slash shake, giving you highlighted in the potash division in <unk> I mean, the price environment is improving sequentially and then the second question specifically on for I mean volumes, obviously down slightly versus 2019 levels. This culture wise lost.
<unk>, 12% make sure that's correct K, you mentioned and impact of maintenance and if you could help us sort of quantify that that otherwise is this the sort of sustainable run right. We should expect gross today in this division until there's new I, sometimes come in the second half.
Of 2022 is there anything else to think about that thank you.
[noise] Hi, Alex Thanks for your questions. So in terms of fourth quarter versus the third quarter. Then if you look historically fourthquarter is is a weaker quarter and and the divisions other than put us which means that typically.
The industrial products sector is lower in the fourth quarter as well as the phosphates solutions division and innovative solutions, the ladder to because of seasonality and the bromine business, mostly because of.
[noise] end of year and in the contract relationships, which get renewed in January but sometimes deliveries get pushed from the the holiday season into January.
Specifically this year on the industrial product side, because we are because we're at full capacity and because of the dynamics of this year. The fourth quarter is going to be very similar to the third quarter may be just a wee bit.
Less.
The production the maintenance in the third quarter meant that specifically the third quarter had a lower production. We had 10 days of maintenance at the note of of facility. So the production was a little lower in terms of quantity and some of that.
Spilled into the fourth quarter small portion so a typical quarter would be stronger than the third order because of that and that means that when we enter next year, we're going to start the first quarter with a higher production level.
And also with higher prices because of the renewals of new contracts are going to be prices that reflect some of the elevation and roaming prices in recent months the don't come in online into the into the contracts so bromine for fourth quarter.
Somewhat similar to third quarter.
Next year higher than higher than third quarter, and the second half of the year better because of new production capacity.
Phosphate division and innovative as solution to division are going to be softer in the fourth quarter, then in the third quarter because of seasonality issues, they're not going to be softer than the third quarter. The same levels of last year the.
The effects were going to be smaller because there is a lot of demand out there, which is stronger than last year and some of it even unanticipated and also the Brazilian acquisitions add AD sales and profitability that did not exist last year.
So we're left with put out put us is going to be significantly stronger because of higher pricing.
So we're going to see about $100 of additional additions to the average price of put that in the in the fourth quarter similar almost similar fourth quarter and industrial products.
[noise] and weaker quarters, and phosphate and and I S. Having said all of this like I said in the beginning of the year and during the year. This is the first year, we were giving estimates. So we are on the conservative side, so things that things that.
Still can change or materialize or not materialize, we're more careful and one of those things. For example, it's it's been made publicly known that we're negotiating certain adaptations to existing contracts.
We have not taken into account any changes if they happen.
So a little bit conservative fourth quarters always lower than third quarter, mainly in phosphate and innovative solutions are specialty fertilizers. I think that gives you that gives you more or less the gist of it.
Hope that hills excellent yeah, that's very helpful. Thank you.
Your next question comes from the line of Jello Jackson F. BMO capital markets. Please ask you a question.
Hi, This is <unk> on for Joe Jackson. Thanks for taking my questions ask you. If I may just to follow up on your potash comment looking at the benchmark prices in Brazil currently around $800 a ton as I feel booking any meaningful volumes at these bench my prices for a few months out maybe you can comment.
But on the on your color book and and what you see for Q wanting.
Coupons Q1 versus benchmark prices.
The the recent sales in Brazil, where a few thousand here a few thousand there the largest business that we signed that around $800 was about two we.
X back if I'm not mistaken was about 40000 times the the market in Brazil. Currently is off season. So that's actually more than we would typically so in any given year I hope that helps usually the the market in Brazil from our perspective.
It was relatively dormant in the first.
In the last quarter and in the beginning of the first quarter.
So we're <unk> we've sold more this year in Brazil, then last year for them.
Yeah that helps thank you so much and just one more question on deep booming markets, we're seeing a volumes constrained from raw materials and produce from producers how much visibility does I still have into this maybe you can give a bad color.
On what you think the dynamic will be like for I shall and the first half of 2022.
Okay. So there was some force Ms. You're in the industry, mainly around chlorine that's not an issue for us we produce our own chlorine. So we don't expect anything in the near future that will hamper our efforts to produce the capacity production that we need.
Perfect. Thanks.
Thank you. Thank you and your next question comes from the line of no Basher Chowdhry If city. Please ask you a question.
Hi, Thank you for taking my question.
Just a couple of comments around the room potash unfilled <unk> demand and then kind of there's been some chatter on some of your <unk> on on the earnings close looking about.
Fall is potentially containing will reducing the amount purchases and try and prioritize nitrogen purchases. There's some for <unk> <unk>, what you'll see it and and what your views on on that that would be helpful. And just secondly, <unk> <unk> <unk> <unk> <unk> <unk> has that resulted.
In high volumes from the Sofa, you that you owe policing and kind of geographically submit a reason to be able to take some <unk>. Some people today that would be helpful. Thank you.
Okay. So I'll start from the ladder question regarding <unk> chlorine, though that's not it's not an issue for us the like I said coin, we we produce for ourselves and it's not geographically based there was some calling for forced Missoula, mainly in the U.
S.
So that's not affecting us Unfortunately for us although there was demand for additional capacity, we could not produce the additional capacity. So we may have lost some opportunity there, but unfortunately, we're fully booked.
So that's that's regarding that it has of course affected the market prices, including for a contract renewals. So you know just from from basic physics, where our new contracts are being fined at higher prices and there will be a price effect and.
And 20 twenty-two, but we didn't take on additional wanted these because we don't have the capacity to take on additional capacity until mid 2022.
Let's get back to the the dynamics of phosphate and put us. So first of all we need to recognize that this year, there politics coming into the market and politics have to do with food security and other sisters.
Sustainability and other issues that caused government's to interfere and some of the interference is causing ban on exports in China now also and Russia phosphate market is is currently V.
Very much undersupplied.
To an extent that there's.
There there are difficulties for farmers getting some of the product they need and if you're falling the situation in in India and prices are going up the government. The government is lagging in terms of providing the necessary subsidy to protect to protect.
Farmers.
That of course affects the food, a bill availability and that becomes a political issue.
Other politics concern Uhm climate change, obviously American and European politics around that the effect on gas prices and oil prices and also sanctions or political sanctions uhm effects.
Being the potential supply of put us from from Bill of Russia. So all these things figure into the to the market that is tightly supplied and and over demand currently affordability as a as a <unk>.
Question and in some places like India for example, and that will be determined by by government subsidy in most other regions, they're additional acres being coming into the system and still there's positive affordability so still marginal.
Really it makes sense to apply more fertilizer in order to increase production. The next stage also of course higher oil and gas prices support corn price through ethanol.
And the next day, which the market will be tested will be from food prices that are now going up globally. There's been some constraint on <unk> on rise of food prices again politics may be COVID-19 related.
Large food companies found it it made them unpopular to raise prices, but on the other hand or input prices are growing.
And if food prices grow and that effects the crop prices and obviously it will affect the affordability in a in a positive way and that remains to be seen so I would say that and in our long run view, if rising food prices result in higher Ford ability obviously.
That will that will put a pressure on prices and a wave growing prices on the other hand, if oil prices come down food prices don't go up affordability goes down then we won't see the same kind of growth as we did.
As we did last year, but on the other side, if we don't see demand growth, we still need to see what happens on the supply side right now supply side on phosphate is very tricky.
Some may be transitory, but some is not because fast phosphate capacity has gone down in China Ah some of it for good including P. Four capacity.
And I put as there's the bill Russian issue that I mentioned earlier. So there are a lot of moving parts right now near term I think the main the main thing to look at would be the new contract prices in India in India, and China, China has been.
Has started using emergency reserves and has tendered out product at $469. So that becomes their <unk> their base price for negotiating a new contract to remind you that.
That's that means almost 100% increase from last year's price. So the Chinese contract in the Indian contract will be very significant in determining the anchor price for for put ash a phosphate right now is on its way up there's.
Increasing demand from you applications, such as LSP batteries, and the China constraints everything together without significant additional capacity coming into the market and ammonia prices, where they are I don't see phosphate prices stabilizing.
In the near term so fossick prices, we don't see them stabilising in the near term what else prices very much dependent on contracts with bill of Russian issue to be decided sometime in the beginning of December. The question is not how significant are the sanctions in terms of what the kind.
Have put ashes included the sanctions I'm talking about the European M. U S. It's more what does it mean in terms of the the ability of of the Bill Russians to take product out of the Lithuanian port and what is their ability to deal with with <unk>.
Shipping and banking in order to deliver product. So those are the things I think that that we need to watch for.
That answers.
That's very comprehensive thank you very much for your time.
Thank you and your next question comes from the line of <unk> Andreas If Morgan Stanley. Please ask you a question.
Hey, guys as well paying on Thursday, and thank you for taking my question. So on your press release, you mentioned limited local supply for Brown me out of China is that a function kind of the dual control mandates on the production Ah and if so what is the magnitude.
Production, that's been enacted and then I guess more broadly could you just comment that uhm like the local supply situation there.
Could you. Please just repeat the first part of your question cause I couldn't hear.
Yeah, sorry, you guys mentioned unlimited local supply for driving in China.
At a function of what to do with control mandate.
And that is so what is the manager of production has kind of been impacted by that.
Okay. So there there are two combined elements here one element is that there's a reduction of capacity that comes for from depleting resource.
And that's happening at about four or 5% the year and then they're shutdowns that are coming from regulatory scrutiny.
From environmental issues. So I don't remember the exact numbers, but you can definitely get get in touch with us and we'll be happy to supply.
And then I guess, just one more question if I could could you remind us what the path to profitability looks like for Polypod eight.
I think last quarter, you mentioned that you guys had a headwind due to booking sailed at lower prices and then kind of freight rates moving against you.
With the opposite would be true.
If if right right try to move back to normal life levels would you guys be profitability earlier than previously expected.
The short answer is yes. This was the first quarter in which we actually sold more poly's sulfate then we produced.
Which is a very good sign we actually didn't produce as much as we wanted we came we came up a little bit short, but we still sold more the premium also went up Unfortunately transportation costs also went up so that that doesn't help but the the the market is accepted.
In our products and also in October for the first time ever we cross the million a million ton run rate for Bali.
So that's also a milestone we look for so all in all the poly business looks like it's shaping up to be in a better place.
Thank you.
Thank you and your next question comes from the line of the place if there can be peace ask you a question.
Hi, My name is congratulations on the on the greatly salt.
And thanks for taking the question and doing the call. My question was around throw mine and just a bit longer term can can you talk a little longer time to to sort of what you see on on supply and demand.
Okay. So first of all I I, Oh Goin' answered from before so I got I got the details that I needed two years ago. The Chinese market was producing about 65000 tons.
And it's down to less than 50000 tons now so it's it's even going down by more than five per cent in the long term. The the bromine industry is not a priority is prioritized industry in China.
And that means that I'm slowly, but surely much of the compound business is flowing out of China and most of it is coming to us.
So I think that the reduction in production of of compounds is to to some significant extent depends on how aggressive will be growing our and growing our capacity. It makes a lot of sense.
Because we have the bromine available on hand, we don't depend on anybody else and we're reliable <unk>. We are reliable producer as we sign more long term contract the meaning of them is that the compound production is.
Is transferring over to our facilities, what I can say for the long term is that we are pretty far ahead of our five year plan that we presented so.
Once once we're ready then will present and updated plan with more ambitious with more ambitious results.
I hope that helps you.
Yeah. Thank you.
Thank you.
Thank you once again to ask a question. Please press star and one <unk> one on your telephone if you wish to ask a question.
Question comes from the lineup Jeff.
W. B S. Please ask you a question.
Oh, Thank you very much I just have two questions how shall I <unk> are you getting any inquiries about using phosphate for Allah production from outside China.
The second question is can you update us on where the status says for the renewal of the 2023 confession that that's a place.
That's the concession is 2030, so we're between 30 sorry.
Yeah, it's still far away there's been no major.
Uhm major development in terms of in terms of the concession Israel in the past two years was a busy with with elections.
Reoccurring elections, and just I think today the government approved the first budget in three years and I think in terms of their priority list. They have some other things to deal with but we are in touch with the government officials and I think.
It's it's it's more a concern on their side than it is on our side so I'm sure that.
In the in the coming few years, there will be progress on the confession.
But but what was the first question I'm sorry, ma'am.
The first question was your outside China, Yeah, Yes, yes, we based on our our business in China and our announcement.
We are getting plenty of inquiries, but it's not just from from L. P. Producers. It's from technology partners, we're definitely looking to go up the value chain.
So we're getting inquiries from potential cathode producers and from technology innovators and we are spending time, and we intend to spend some R&D resources into leveraging the opportunity, which we're very very excited about.
Okay. Thank you very much.
Thank you.
Thank you.
No final question comes from the line of Lawrence Alexander Jeffrey Please ask you a question.
Hi, This is maybe a molina phone don't aren't very tender I. Just have one question can you give me a bit more color on here like named him Coleman was he said arisen priceline up and you'd take advantage of it now on 2022 and tell me in full which will be for your top or bottom line.
Yeah sure there was a spike in magnesium prices due to the electricity issues and Kohl's slash electricity in China. So Ah prices spiked from from about $2500 to about $10000 per ton in the recent months and.
We took the opportunity in order to contract a significant portion of next year's contracts magnesium. That's contrary to what we had two years ago. We had we were busy with claim in the U S and we're not able to <unk>.
Tracks on time for for the 2020 year and right now it's it's exactly the reverse uhm. So we're we're entering 20 twenty-two in good shape on on my knees and magnesium is typically not not a profitable business for us it's.
It's result of the production of of <unk> of.
Bromine and and put ash.
And in 2022 is going to be a profitable business for us because of that spike in prices.
Thank you just helpful.
Thank you.
<unk> there are no further questions on the line. Please continue.
We'd like to thank you all for joining us today, and we will speak with you again, when we report our fourth quarter results.
Have a good day.
Thank you. This concludes today's conflicts cool. Thank you for participating he may I will disconnect speakers pay stay on the line.
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