Canadian potash producer PotashCorp forecast Indian fertilizer demand to increase, thanks to an expected improvement in monsoon rainfall from previous year.
Indian potash buyers reopened delayed negotiations with potash producers, after halting imports due to weaker demand due to the dry weather.
"After two years of below-average monsoons, the preliminary outlook for 2016 looks much more favourable," PotashCorp said.
"Monsoon rains are critical if India is to produce a large enough crop for a growing population that is experiencing improved economic well-being," PotashCorp said.
"An improved monsoon should give farmers confidence to invest in fertilizer for the coming planting season."
On Tuesday Reuters reported that Indian buyers have finally opened contract negotiations, but are seeking a sharp reduction from last year's pricing of $332 a tonne.
Indian negotiations are usually launched in February of each year, and completed by the start of April, but proceedings were delayed this year, as a weak 2015 monsoon reduced potash demand.
Rains have already hit India's Southern tip, with the official start of the monsoon expected to follow shortly.
Chinese deals delayed
Contracts signed between Indian and Chinese buyers, and major producers including the North American marketing cartel Canpotex, of which PotashCorp is a member, are used as a benchmark for world pricing.
Chinese buyers, who usually sign contracts in January or February, have also been holding back this year, although reports are circulating that a deal may be imminent.
Last week Canadian brokers Raymond James warned that "many buyers appear to be stepping away from the market as they wait for the conclusion of the Chinese contract negotiations to ensure they get the best possible pricing".
PotashCorp forecast rising potash demand worldwide.
"We expect potash shipments to most markets will increase in 2016, largely driven by consumption growth, lower distributor inventories and lower potash prices," the company said.
"Demand in North America is expected to grow as dealers recharge inventories and farmers look to benefit from improved affordability," PotashCorp said.
And shipments to Latin America are also expected to rise thanks to "healthy grower margins," although Brazilian demand could still be limited by the shortage of credit.
PotashCorp also noted constrained production capacity, as less profitable operations closed down.
"Based on our estimate of global potash shipments, we believe market fundamentals could tighten as the year progresses."
"Based on public announcements, a total of nearly 7m tonnes of capacity could be closed between 2016 and 2020," the company said, while forecasting demand to rise by 2.5-3% a year to an estimated 70m tonnes by 2020.
Indeed, Tuesday marked the last day of work at PotashCorp's New Brunswick facility, which is being mothballed due to low profitability.
Still, there is new brownfield and greenfield capacity coming online in Canada and the Former Soviet Union, PotashCorp noted.
By William Clarke