Credit Suisse extended downgrades to shares in fertilizer groups, even as data showed slower demand for nutrients driving North American potash inventories to their highest since 2009.

The bank slashed price targets for shares in Acron, PhosAgro and Uralkali, the Russian nutrient groups, leaving Israel's ICL as its top pick for the emerging European and Middle Eastern market.

The downgrades followed cuts two weeks ago to Credit Suisse's forecasts for fertilizer prices, following a "weak fourth quarter and slow January" for demand, as it cut its rating on shares in Norway's Yara International.

"The lack of buying activity caused nitrogen and phosphate prices to decrease significantly after peaking in November 2011," the bank said, terming buying in potash "very low".

While urea and phosphate prices have "marginally recovered", prices "remain well below 2011 peaks as many dealers still appear unwilling to take on much risk and commit to large purchases ahead of the planting season start".

Soaring inventories 

The comments came as Canada-based PotashCorp, the world's biggest potash group by capacity, revealed that stocks of the nutrient held by North American producers jumped by more than 510,000 tonnes last month, taking them 32% above average levels.

Indeed, the increase took inventories above 3m tonnes for the first time since 2009, when a slump in farm demand prompted by the global recession, tight credit and a plunge in crop prices saw stocks, at their peak, top 3.5m tonnes.

The build-up in supplies has seen, in North America, PotashCorp and Mosaic cut potash output plans, with Uralkali, the world's top producer by volume, curbing its operations too.

'Significant new supply'

Credit Suisse said it remained relatively sanguine for potash prices, saying that while the sector had "excess" capacity, "supply discipline" in a sector controlled by a handful of companies "should align physical potash availability with demand".

Acron and PhosAgro faced more difficult markets, in nitrogen and phosphates, in which "significant new Middle East supply should come onstream in 2012-13".

However, while cutting Acron to "neutral", the bank kept an "outperform" rating on PhosAgro, citing the group's ability to compete even at low prices, with its strong hold over supplies of raw materials such as phosphate rock and sulphur limiting its cash costs to a little over half levels some rivals pay.

PotashCorp tries boosting ICL stake

The preference for ICL shares reflected expectations of a rerating, after environmental constraints imposed by the Israeli government last year proved less punitive than had been feared.

It also noted a request by PotashCorp to increase its stake in ICL from 14% to 25%, a move which requires Israeli government approval.

ICL shares rose 0.3% to 39.60 shekels in Tel Aviv while, in Moscow, Acron shares eased 0.1% to 1,395.00 roubles.

In London, Uralkali depositary receipts, a proxy for shares, rose 1.4% to $39.62, while PhosAgro depositary receipts edged 0.9% higher to $10.90.