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Potash inventories fall as price tumbles

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Potash inventories held by the world's biggest producing region tumbled by 18% last month to their lowest in more than a year, as prices tumbled following Russia's agreement to supply China at cheap rates.

The stocks of potash held by North American producers tumbled by 552,000 tonnes to hit 2.5m tonnes in January, data from Canada's PotashCorp, the sector leader, showed.

The third successive monthly decline left inventories 6% above their five-year average, after a year in which a sharp drop in farmer demand in the face of high prices left stocks in many months at more than twice typical levels.

And the decline came as prices - as measured by the spot market for delivery from Vancouver, excluding freight - slumped by one-quarter in the month to about $350 a tonne, the lowest sinece the summer of 2008.

'Recovery well underway'

The decline follows December's agreement by BPC, the Belorussian-Russian export consortium, to sell China potash at $350 a tonne including freight, ending a stand-off which many analysts blamed for exacerbating the downturn in global sales.

Indeed, in a separate report on Wednesday, Credit Suisse analysts said that "volume recovery in potash is well underway" after the BPC-China deal ended uncertainty about how low prices might go.

"The price settlement has established a floor price for potash," the investment bank said.

"Pent-up demand appears to come through now and enables producers to raise prices again."

Grain price threat

The market's "improved momentum" would help producers raise shipments in the first quarter of this year, Credit Suisse, estimating volumes at Germany's K+S at 6m tonnes for 2010, 500,000 tonnes more than the group is forecasting.

Overseas potash prices would average $360 a tonne this year and $460 a tonne in 2011, the bank added, noting the threat to higher prices posed by weaker grain markets.

"In light of low grain prices, the risk that demand cools down again when producers try to implement price increases is still real."

By Agrimoney.com

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