The surge of one-third in potash prices in a two-week push by North American producers is to lose momentum, and will not usher in a return of 2008-style price tags, UBS has said.

The bank lifted its forecast for potash prices heading into 2015 after fertilizer giants Mosaic and PotashCorp raised prices by $138 a tonne within a fortnight to more than $560 a tonne, including freight.

"After two long years of potash pricing decline, price increases have taken hold in North America," a note from UBS's fertilizer company analysts worldwide said, viewing the hikes as "a positive development" for producers.

Wholesalers were likely to swallow the rises, given the recovery in demand from growers.

"With current crop prices, there is limited fear of being left holding over-priced inventories," as happened after farm commodity markets tumbled even into early 2010, prompting growers to slash spending on nutrients.

Capacity vs demand

However, despite the market upgrade, UBS did not see average annual prices returning to the high of $620 a tonne, excluding freight, hit in Vancouver two years ago. Indeed, even in 2020, they would reach only $550 a tonne.

The increase meant that mines would not need to operate at much more than 70% of capacity for most of this decade, short of the level needed to squeeze supplies enough to support higher potash prices.

"Utilisation rates above 82% are required to shift pricing significantly," UBS said. Indeed, they reached 86% in the run up to the 2008 price spike.

Regional differences 

Furthermore, in the near-term, prices outside North America were significantly lower, and looked set to remain so for a while yet.

"Latin America, having achieved $375 a tonne for this season, would find anything more than $450 a tonne [including freight] as too sharp a rise."

The most depressed market, Europe, "will take time" to recover, especially with the pricing power held by nitrogen group Yara International, the region's largest buyer, which uses potash in making blended nitrogen, potash and phosphate fertilizers.

'Too ambitious' 

Indeed, the bank remained downbeat over prospects for further gains in shares in K+S, Europe's top potash producer, saying that the current stock price was already "building in very ambitious price growth expectations for 2011".

The shares, which stood 1.0% higher at E50.01 in late deals in Frankfurt, were assuming a potash price of E335 a tonne next year, which looked "too ambitious" when the group had been achieving only about E250 a tonne this autumn.

European prices were likely to average E316 a tonne next year, UBS said, maintaining a "sell" rating on the shares, if with a price target lifted to E45.00 from E35.00.