Potash prices extended their decline in the wake of China's success in winning discounts, and as inventories held by North American producers rose to amongst their highest levels on record, lifted up a sharp rise in output.

Potash prices, as measured in Vancouver, fell below $420 a tonne last month, data from Canada-based PotashCorp, the world's biggest fertilizer group, said.

The decline reflected the settlement of deals at lower prices after China in December sealed a contract to buy potash from North American producers, such as Agrium, Mosaic and PotashCorp, at $400 a tonne, a $70-a-tonne discount to its previous agreement.

China, as the top-ranked importer, typically receives the lowest prices, but sets a benchmark for levels charged to other buyers.

Output rises faster than demand

Indeed, the PotashCorp data also showed a sharp rise in demand, both domestically and on export markets, for North American potash as the signing of the Chinese contract resolved caution among other buyers, who had been reluctant to purchase before seeing what China had paid.

North American potash exports soared 24% to 812,000 tonnes, up 26% year on year, while domestic sales soared 62% from January to reach 769,000 tonnes – more than double volumes of a year before.

Nonetheless, potash inventories rose too, by nearly 140,000 tonnes last month to 3.26m tonnes, one of the highest figures on records going back to the start of 2006, and 38% above the February average.

The increase reflected a rise in production of more than 500,000 tonnes, or 45%, month on month to a level 50% above that a year before.

Producer hopes

Producers, in North America and elsewhere, have proven upbeat on prospects for potash sales in 2013, citing the impact of the Chinese contract in providing certainty for buyers, and elevated crop prices in boosting farmers' willingness to invest in inputs.

Germany's K+S last week forecast a revival in world industry potash sales volumes potentially to their second-best ever this year.