Demand for potash may remain weak even in 2010 unless fertilizer groups emulate Silvinit, the Russian producer, which has swallowed a big cut in prices, analysts at Credit Suisse have warned.

The investment bank, challenging forecasts by fertilizer groups of a sharp rise in potash sales, said it was significantly less confident than many investors of the industry's pricing power.

Fertilizer groups have held potash prices relatively high, banking on farmers being unable to maintain for long the lower application rates they have used since lower crop prices reduced farm profitability.

Canada's PotashCorp, the sector leader, two weeks ago announced sales to Japan, a relatively small market, at $700 a tonne, some $200 a tonne below previous contracts but still well above historic pricing levels.

Belarusian Potash Company, the Russian-Belorussian joint venture, has been attempting to achieve $750 a tonne.

'Weakened case'

However, Silvinit had "shattered" the industry's potash price discipline by selling potash to India – one of the key markets for the nutrient - at $460 a tonne, Credit Suisse said.

And even at that level demand would remain "depressed" in 2009 and 2010.

"Particularly in nutrient-rich geographies like Europe or the US, skipping application for one or two seasons has been the answer of farmers to potash prices out of sync with the economy," the bank said.

"Falling crop prices, tight credit markets and droughts in China and Argentina have increased farmers' reluctance to accept artificially high prices and weakened the case of potash producers."

The "key question" for the industry was the potash price which could justify returning production to 2007 levels, Credit Suisse said, while declining to offer an answer.

Volatile shares

The comments came in a note on K+S, the German potash group, cut its prices to $600 a tonne last month and mothballed capacity, citing weak demand.

The company, which has potash capacity of 6m tonnes, will ship 4.4m tonnes this year and 6m tonnes in 2010, Credit Suisse forecast.

K+S shares, which weakened on Monday when European investors had their first chance to react to the Silvinit-India deal, stood E0.36 higher at E37.11 in late trading in Frankfurt on Tuesday.

Shares in Israel Chemicals, which slumped nearly 9% on Sunday, closed 3.1% higher at 36.50 shekels.

In Toronto, PotashCorp shares were Can$3.00 lower at Can$95.05. A close at that level would be the lowest since mid-March.