Exporters worry about strong shekel

Damages could reach $500 million this year, profits could take 2.5% hit.

By SHARON WROBEL
July 6, 2006 07:22
1 minute read.
shekel coins 88

shekel coins 88 . (photo credit: )

 
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Israeli exporters are voicing concerns that the strong appreciation seen by the shekel will harm their exports and damage their production and profit levels. "From the beginning of the year, the shekel has gained 4 percent versus the US dollar, which will damage export profits and harm competition in an industry in which about 70% of trade is in US dollars," said Shraga Brosh, President of the Manufacturers' Association of Israel. "In the upcoming quarter, the rally in the shekel is expected to cause damage of $100 million and $500m. for the year for exporters." Brosh added that annual profits were anticipated to be hit by 2.5 percent over the year. To help industry, Brosh has asked for $90m. in government support over the next two years to increase production levels and employment. Overall, in the first five months of the year, there was an increase of 19% and 6.6% in exports and imports, respectively. The shekel has enjoyed big gain of more than 10 cents against the dollar over the last week on speculation that the Federal Reserve's policy of interest rate hikes has come to a halt. "Exporters are beginning to moan about the recent strength in the shekel, which has gained 7% versus the US dollar since the end of March, but we will only start to see a major cut in margins if the dollar falls to a low of 4.2 or 4.1 against the shekel," said Avi Weinreb, a trader at Clal Finance Batucha. "Notable exporters in the TA-25 index are Israel Chemicals and MA Industries - these companies report in US dollars but have substantial expenses in shekels". Weinreb remarked that although the CEO of Israel Corp., which owns 50% of Israel Chemicals, has raised concerns that the shekel's recent gain would have a negative impact on Israeli exports, the impact would not be a serious one. "The flipside of the currency strength is that imports of raw materials are much cheaper, which offsets the strength of the shekel. However overall the impact is negative," he said. According to Weinreb, the bigger and more significant effect of the strength of the shekel against the dollar is on the average household budget and overseas travel, which has the effect keeping inflation under control.

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