Bethel Finance: Netanyahu Sees Red Sea-Negev Rail Spurring China Trade: Freight

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Israel is planning a train link between its Red Sea and Mediterranean ports intended to serve as an overland alternative to the Suez Canal and to spur increased trade from China, India and other Asian countries.

The cabinet approved on Feb. 5 a 350-kilometer (218-mile) line to link the city of Eilat, Israel’s sole Asian-waters port, to the existing rail system, connecting to the Ashdod port. The project may start as early as this year.

To Prime Minister Benjamin Netanyahu, the link is a means to increase trade with the expanding economies of Asia, reducing dependence on Israel’s traditional export markets in Europe and the U.S. and transforming Israel into a Middle East trading hub. The premier says having an overland cargo route to the Mediterranean will boost the country’s value as a strategic partner to China and India and would be “useful” in case “problems” arose with the Suez Canal.

“How can we get the great Asian economies interested?” Netanyahu asked during an interview with Bloomberg News in Tel Aviv on Feb. 20. “We can build a train line from the Red Sea to Ashdod to link Asia and Europe.” The project “will help open up markets.”

Israeli officials in recent discussions with Chinese and Indian counterparts have raised the possibility of companies from there taking part in building and operating the estimated 8.6 billion shekel ($2.3 billion) project, expected by the government to take five years once construction gets under way.

Chemical Exports
The government estimates the rail link will multiply cargo traffic at the Eilat port, which primarily handles chemical exports to, and merchandise imports from, Asian markets. According to a Ministry of Transport study, chemical exports from Eilat that totaled 2.4 million tons in 2008 may rise to as much as 5.4 million tons in 2020. Shipping containers could increase from 2,000 20-foot containers, or TEU, to 210,000 TEU.

The government is selling the port to private owners and expects to complete the process this year. Five companies -- Maman Cargo Terminals and Handling Ltd., Gadot Chemicals Tankers and Terminals Ltd. (GDTN), Papo Maritime Ltd., Mifalei Tovala Ltd. and Gold Bond Group Ltd. (GOLD) -- have reached an advanced stage in the sale, the Finance Ministry announced on Feb. 21. In two months, after the government works out provisions to safeguard the interests of port workers, the contenders can submit bids.

Mifalei Tovala is a subsidiary of publicly traded Israel Chemicals Ltd. (ICL), which extracts minerals from the Dead Sea to make potash and fertilizers. Acquiring the port may help it contain labor actions and other contingencies that have sometimes delayed its exports to Asia, said Joseph Wolf, an equity analyst at Barclays Capital in Tel Aviv.

Sustaining Edge
“One of Israel Chemicals’ biggest advantages over their rivals is their time-to-market shipping to India and China,” Wolf said in a phone interview. “Controlling transportation and making sure that edge is sustained is an important part of their strategy.”

Israel Chemicals shares are down 0.8 percent this year in Tel Aviv; Potash Corporation of Saskatchewan Inc., the world’s largest fertilizer producer by market value, is up 5.8 percent in New York trading over the same period.

Linking Eilat by rail to Ashdod, along a route used in ancient times by caravans bringing spices and incense from Arabia and India to Europe, has been contemplated for decades. It was first promoted by Netanyahu while he was finance minister in 2003. He revived the idea after becoming prime minister in 2009 as part of a nationwide rail development program.