* Earnings come in just below analysts' estimates
* Earnings per share for 2012 seen at $2.40 to $2.60
* Weaker fourth-quarter view seen, but shares steady
By Rod Nickel
Oct 25 (Reuters) - Potash Corp of Saskatchewan's third-quarter earnings fell 22 percent as a standoff over new contracts led to a sharp drop in shipments to China and India, the world's two biggest consumers of the company's namesake crop nutrient.
The world's biggest fertilizer maker said on Thursday that overseas potash shipments by North American producers dropped by one quarter to 1.9 million tonnes in the period. China accounted for just 12 percent of sales and India 5 percent.
"The weakness obviously is in China and India, but that shouldn't be a surprise to anyone," said analyst Spencer Churchill of Paradigm Capital.
Potash Corp, Agrium Inc and Mosaic Co conduct offshore potash sales from their mines in western Canada through the marketing agency Canpotex.
Analysts had expected Canpotex to renew supply contracts with China and India in late summer, but now they say it may take until late 2012 or early 2013.
China is seen as being well supplied with the crop nutrient, while a reduction in Indian subsidies and a weaker rupee have made potash more expensive for that nation's farmers.
Shipments to China should resume before the end of 2012, but it's difficult to predict when India might take steps to increase potash subsidies, Potash Corp CEO Bill Doyle said.
2013 looks to be "a significant recovery year," he said.
"We believe our business operates on a long-term continuum," Doyle said in a conference call. "It will take a little time before we can fully turn loose our horses and fully demonstrate the full capability and value of our potash expansion program."
Potash Corp is nearing the end of a nine-year expansion of its potash capacity, but later this year it will idle two of its mines for eight weeks because of oversupply. More such shutdowns are likely in 2013, even with a more robust market, Doyle said.
Both China and India are expected to negotiate price cuts, but Doyle said current price levels are affordable and are not reducing demand.
Potash Corp dialed back expectations for the fourth quarter. It forecast a full-year profit of $2.40 to $2.60 a share in 2012, compared with its Oct. 17 outlook of less than $2.80.
The implied fourth-quarter earnings outlook is 51 cents to 71 cents per share, excluding one-time charges, which is lower than analysts' average forecast of 78 cents, Churchill said.
Potash shares were down 0.2 percent in New York and off 0.1 percent in Toronto in late-morning trading, paring premarket trading losses of nearly 3 percent following the release of its earnings.
Potash Corp now estimates global potash shipments of 50 million to 52 million tonnes for 2012, down from its previous view of 53 million tonnes.
Several analysts have downgraded Potash Corp shares this month, and half a dozen have reduced their price targets on the stock. At Wednesday's close, shares of Potash Corp had fallen 7 percent over the past month.
Analysts have also cut price targets for rival Mosaic, which missed expectations when it reported quarterly results on Oct. 2.
Potash Corp's third-quarter net earnings fell to $645 million, or 74 cents per share, from $826 million, or 94 cents per share, a year earlier. Revenue was down 8 percent to $2.14 billion.
Analysts on average expected 75 cents per share, according to Thomson Reuters I/B/E/S.
The Saskatoon, Saskatchewan-based company said on Oct. 17 that it expected earnings at the low end of a range of 70 cents to 90 cents per share.
Potash Corp said its record third-quarter potash shipments of 1 million tonnes in North America, helped by a speedy U.S. harvest that encouraged farmers to bulk up on fertilizer for autumn applications, partly offset weaker offshore sales.
In total, Potash Corp sold 2.1 million tonnes of potash during the quarter, down 4.5 percent from a year earlier.
Some analysts said the devastating U.S. drought might cut into U.S. potash applications in the fourth quarter, as disappointing crops left more of the nutrient in the soil.
But Potash Corp is seeing "very positive demand" from U.S. farmers, said Stephen Dowdle, president of PCS Sales.
The company's expectations for a stronger 2013 hinges largely on China and India, Barclays analyst Matthew Korn said in a note to clients.
"More focus on the uncertain potash demand outlook for 2013 should keep a headwind on stock performance," he wrote.
Weaker margins on sales of crop nutrient phosphate further eroded Potash Corp's third-quarter earnings. The company sold 18 percent less phosphate than it did a year earlier due to bad weather and production challenges, and prices were also down.
Prices of nitrogen rose, but Potash Corp's sales of the nutrient fell 15 percent due to interruptions in natural gas supplies and expansion-related downtime at its Augusta, Georgia, plant.