The long-awaited rebound in potash demand has been delayed another month, with inventories of the fertilizer held by North American producers soaring more than 20% last month.

Stocks of potash at North American producers, such as Agrium, Mosaic and PotashCorp, rose by nearly 550,000 tonnes last month to return above 3.0m tonnes.

While inventories typically grow towards year-end - with the northern hemisphere autumn fertilizer application periods past, and preparations for spring not yet underway – last month's rise was particularly strong, taking inventories 58% above their five-year average.

In October, stocks were 43% above typical levels, according to the monthly data, released by Canada-based PotashCorp, the world's top potash producer by capacity.

Mine capacity mothballed

The rise in inventories - which coincides with an erosion in potash prices to some $470 a tonne in Vancouver from roughly $500 a tonne at the start of 2012 – comes despite efforts by miners to cut back on output.

PotashCorp, which was revealed last week to have cut US prices 12% since July, has since mid-August announced mine shutdowns totalling 36 weeks in the September-tp-February period.

Russia's Uralkali, the top producer by output, said earlier this month that it would cut output by one-half, to 2m tonnes, in the December-to-March period "because demand will be rather weak".

Demand is being sapped by an increased reluctance among wholesalers to keep stocks of potash, after being caught out by the 2008-09 collapse in values, and by a stand-off by top importers China and India over signing new supply contracts.

'Demand remains sluggish'

The stocks data was termed "negative" by analysts at broker AltaCorp, warning that the increase had added "additional overhang" in potash supplies.

"We have now witnessed two continuous months of inventory increases, yet no meaningful sales contract," AltaCorp analyst John Chu said, terming the data "bearish".

While an early-finishing, if disappointing, US harvest this year had created "indications of strong demand conditions", the rise in inventories "suggests that demand remains sluggish".

"Our cautious view on the industry remains."

Record year ahead?

Many potash groups have unveiled upbeat forecasts for next year, with Mosaic chief executive Jim Prokopanko saying last month that elevated crop prices, and strong farm profits, "are expected to drive record global phosphate and potash shipments in calendar 2013".

PotashCorp last week forecast "record global consumption of potash in 2013, driven by agronomic need", besides by the temptation of cashing in on elevated crop prices.

Potash inventories in most major markets will end 2012 smaller than a year ago, "supporting a more robust start to the year in all major markets", the group said.

This included North America, "where we anticipate shipments approaching historical averages, which would represent an increase of more than 1m tonnes from 2012".

'Downward pressure is possible'

However, uncertainty still clouds orders from China, whose potash inventories are estimated at 2m-4m tonnes, and India, where talk is of stocks as low as 400,000 tonnes.

And even when China does return to the market, it may be as a buyer at spot prices rather than through long-term supply contracts, both PotashCorp and Uralkali have speculated.

"The effects of a move to spot by China on potash prices at this point are uncertain, although some downward pressure is possible," Mr Chu said.