Israel Chemicals Ltd (ICL) plans to halt magnesium production at its metallurgical arm Dead Sea Magnesium (DSM) by 1 January 2017, after an Israeli government committee recommended levying a tax of 42% on the production of natural resources in the country.

The board of directors of ICL has instructed management at the DSM plant to prepare for the closure of the company unless discussions with the State of Israel regarding the tax and royalty issues support the continuation of magnesium production.

Production at the plant was economically viable, the company said, because of the plant’s synergies with ICL's other facilities in Sodom, which provide and receive raw materials from DSM.

But the increase in taxes on production from natural resources has weighed on the net value of these synergies, which is likely to be hit further if recommendations from the Sheshinski committee to increase the tax to 42% are made into law.

If passed, the tax on natural resources would come into effect in 2017.

After the recommendations were made, ICL said the levy would create a “further significant competitive disadvantage” of its Israeli assets, compared with international competitors which pay lower tax rates.

As a result of the government committee recommendations, ICL has already halted all investments planned in Israel totalling over $1 billion, including at its magnesium plant.

DSM mainly exports its production to the USA, according to market sources. It is one of the main sources of imported primary magnesium to the US market.

The company exports little to Europe, sources said, as DSM cannot compete against the low prices from China, but anti-dumping measures against China in the US make it able to compete with local and Russian production at higher prices.

In 2013, sales of magnesium at the company totalled around $115 million, and the gross profit of the magnesium plant was around $1 million. As of June 20, 2014, the value of the assets of the magnesium company was around $35 million.

Management at DSM has been instructed to support existing and future customer orders and commitments to avoid interruptions before the plant closes.

Chloe Smith
Twitter: @ChloeSmith_MB