Fertilizer and specialty chemicals maker Israel Chemicals (ICL) posted sharply higher third-quarter net profit, boosted by strong demand, price increases and acquisitions and sees European fertilizer demand picking up in early 2012.

ICL, the world's sixth-largest producer of potash, said on Monday the financial crisis "is darkening the economic atmosphere" in Europe.

"Farmers and fertilizer distributors are wary of commitment and are especially anxious about holding on to stocks lest prices fall if a crisis occurs," ICL said.

But, it added: "As the spring fertilizer season approaches in Europe fertilizer demand is expected to resume at the end of the fourth quarter 2011 and the first quarter of 2012."

Citi analyst Andrew Benson said he expects a strong fourth quarter mitigated somewhat by subdued European demand.

"We would expect demand to increase by the year-end but pre-season buying may be more focused on first quarter 2012 in Europe than the more normal fourth quarter 2011 period," he said.

Demand in Asia is strong, he added, forecasting 14% earnings per share growth in 2012.

ICL did not provide an update on talks with the government over who should pay the costs of a plan to harvest salt in the Dead Sea to prevent flooding caused by ICL's mining activities. The government is also considering increasing royalties ICL must pay to extract minerals from the Dead Sea.

"Agreement with the Israeli government on environmental and royalty issues is close, but it may cause a reduction in EPS of 6% to 10% as the cost of settlement of all issues is taken into account," said Benson, who rates ICL "buy".

Shares in ICL, the second-largest company on the Tel Aviv bourse, were down 0.8% to 39.73 shekels at midday, compared with a decline of 1.6% in the blue chip index.

Canada's Potash Corp, the world's largest fertilizer producer, owns 13.9% of ICL, which is controlled by conglomerate Israel Corp.

Potash Boost

ICL's net profit in the third quarter jumped to $436 million from $243 million a year earlier as revenue rose 36% to $1.898 billion. It was forecast in a Reuters poll to earn $445 million on revenue of $1.891 billion.

ICL said its decision to stockpile potash during a period of low demand in 2009-2010 enabled it to sell 1 million tons more potash into current strong markets.

Higher prices and sales quantities were partially offset by rising prices for raw materials.

ICL consolidated specialty fertilizer businesses acquired in the first half as well as a Mexican food ingredients maker purchased in the third quarter.

ICL is the world leader in bromine used as a flame retardant for the electronics industry.

Its industrial products division, which includes bromine, posted a 21% rise in sales to $381 million due to higher prices as China decreased its bromine production.

Nevertheless, "demand for the segment's flame retardants moderated toward the end of the quarter due to a slowing of demand, particularly for consumer electronics, in worldwide markets," ICL said.

The division benefited from increased drilling fluid sales as the quarter saw a rise in the number of deep water drilling permits issued by the U.S. government in the Gulf of Mexico as well as expanded drilling activities in other regions.

ICL will pay a dividend of $300 million for the quarter, compared with $298 million in the second quarter.