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Potash prices to hit two-year low, says Goldman

Potash prices are poised for their weakest quarter in more than two years and will, like those of phosphates, not improve significantly until at least 2013, Goldman Sachs has said.

The investment bank, placing nitrogen as the only one of the three major nutrients placed for price rises, acknowledged that the autumn fertilizer season may prove a strong one for volumes, thanks to a knock-on effect from the favourable spring planting conditions.

"An early planting season may translate into an early harvest, which lends itself to a nice window for fall application before the winter descends," Goldman said in a report.

Furthermore, the strong condition of the 2010 crop raised the likelihood of some nutrient depletion, triggering "robust" fertilizer demand.

'Extremely competitive'

However, with wholesalers unwilling to stock up significantly after suffering big losses on expensive inventories over the last two years, and outlooks for sowings and farm revenues steady, an autumn recovery in fertilizer prices would prove muted.

Goldman estimates for phosphate and potash prices, per tonne

2012: phosphate, $395; potash, $365

2011: phosphate, $402; potash, $364

2010: phosphate, $403; potash, $369

2009: phosphate, $290; potash, $636

2008: phosphate, $877; potash, $566

Prices given are averages per year

Potash prices would recover from an average of $358 per tonne for the July-to-September period, the lowest since the first quarter of 2008, to $362 per tonne.

And longer term, the "extremely competitive" potash market faced potential "oversupply" around 2014, as fresh capacity comes online, while a huge Saudi Arabian project would provide "some pressure" to phosphate prices, helping limit the chances of a further leg to their recovery.

"Capacity increases in the pipeline should allow supply to generally keep pace with demand," Goldman said.

Prices of nitrogen-based ammonia and urea would be supported, for a while at least, by demand increases capable of absorbing expected rises in production of the nutrient.

'Gas inflation'

The forecasts came as Goldman resumed coverage of shares in Agrium and CF Industries, two of the companies involved in North America's three-way takeover fertilizer war, which ended in March.

Goldman, an adviser to Agrium during the year-long battle, gave a "neutral" rating to the Canadian group's stock, noting "limited near-term drivers" to share price rises.

The bank also placed CF at "neutral", warning of a potential increase ahead in prices of natural gas, a key raw material for nitrogen groups.

"We are concerned about gas inflation in 2011, as well as potential nitogen oversupply," Goldman said.

Agrium shares closed 0.7% lower at Can$59.40 in Toronto, with CF stock down 0.6% at $75.31 in New York.

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