Potash sales will recover sharply this year thanks to the sealing of a fresh Chinese import deal, but prices will not recover to 2008 levels for at least six years, Credit Suisse has said.

The investment bank upgraded its hopes for shares in PotashCorp, the world's biggest potash group, to "outperform" and US-based Intrepid Potash to "neutral" after China, the world's biggest consumer of the nutrient, agreed to pay $350 a tonne, including freight, for fresh imports.

While the price was lower than many investors expected, it should drive a "solid demand recovery" in 2010 by clearing up doubts just how far a drop in prices was likely to go. China's huge purchases typically enable it to pay less than other buyers.

PotashCorp shares closed up 5.4% at Can$123.00 in Toronto, with Intrepid Potash stock ending up 3.7% at $31.75 in New York.

In Europe, K+S surged 6.7% to E44.525 in Frankfurt, while Israel's ICL Group ended 3.6% higher at 52.00 shekels in Tel Aviv.

'Pent up demand' 

Global sales were likely to jump to more than 45m tonnes from 25m-30m tonnes last year, fuelled by restocking by dealers - who have "virtually no" potash stocks according to a Credit Suisse survey -  and robust crop prices, which will encourage farm applications.

However, prices would be held back by the 20m tonnes of extra potash production – equivalent to more than 30% of current capacity - set to come onstream by 2020 through expanding existing mines.

"Brownfield expansions will be sufficient to meet demand growth until 2020," Credit Suisse said.

Potash prices would not return to 2008 levels of $520 a tonne for China orders, including freight, until 2016.

Delayed deal 

The forecasts came the day after Canadian broker Research Capital cut its earnings forecast for PotashCorp shares by 22% to $5.57 per share to reflect the unexpectedly low China deal.

However, it noted that China had so far sealed agreement with BPC, the Belorussian-Russian trade group, and not with North America's Canpotex, despite fresh discussions on December 23.

"Historically, Canpotex has followed with an agreement with China almost immediately (within a week or so) after a BPC-China settelement," Research Capital analyst John Chu said.

"This marks the first time that Canpotex has failed to follow suit. One could interpret this as possible putting upward pressure on potash prices given that Canpotex is the world's largest exporter of potash."

BPC's deal had been motivated by the wish to reach agreement before China's peak January-to-march potash restocking season, ahead of spring sowing.