February 23, 2012 / 7:30 AM / 5 years ago

UPDATE 2-Canpotex CEO sees potash demand recovering soon

* Canpotex CEO says Q1 sales weak, but sees strong Q2 demand

* Sees FY2012 shipments roughly in line with 2011 levels

* Says very close to new China contract settlement

By Allison Martell and Euan Rocha

TORONTO, Feb 23 (Reuters) - Demand for the crop nutrient potash is seen recovering in the second quarter despite a weak start to the year, the head of marketing consortium Canpotex told Reuters on Thursday.

Chief Executive Steven Dechka said Canpotex is projecting overall 2012 shipments in line with 2011 levels. It exports potash on behalf of its three owners -- Potash Corp, Mosaic and Agrium Inc.

"We had a fall in the fourth quarter as the European crisis started to hit again, people started getting nervous," he said. "We've had a slower-than-expected, I can be honest, first quarter."

But Dechka said he sees the market balancing out as inventories get drawn down and confidence improves, with a strong recovery by the second quarter.

Dechka said a new supply deal with China is close, and the company is expecting to have the contract "hopefully by the end of this month".

The company sees shipments to China in 2012 close to 2011 levels, and a "very strong" year in Brazil, close to last year's record.

Canpotex and rival consortium Belarusian Potash Co (BPC), which markets potash for Belaruskali and Uralkali, together account for roughly two-thirds of global overseas exports of the nutrient, which strengthens plants and improves yields. Potash is only mined in a handful of countries and supply is tightly controlled by a small number of producers.

The large export contracts that BPC and Canpotex sign with buyers in China and India are closely watched by the market, as the pricing of these contracts typically sets the tone for spot market purchases made by other major importers like Brazil and the United States.

"India is a totally different matter, much more difficult to predict, because there's so much government involvement and so much depends on what the government decides to do," said Dechka, adding that a new contract with Indian buyers would not come until the second half of the year.

PRODUCTION CUTS

The current weakness in potash demand was highlighted on Wednesday, when Potash Corp - the world's top producer of the nutrient said it has extended temporary shutdowns at its two largest potash mines, as it battles to reduce inventories that are rising due to weak demand.

Earlier this month, data released by Potash Corp indicated that North American potash inventories rose around 20 percent in January from the previous month, signaling a possible drop in prices even as the region's largest producers Potash Corp and Mosaic scrambled to cut output.

The price of the crop nutrient, which typically lags a sharp move in inventory levels, is little changed at about the $500 a tonne level, according to recent Potash Corp data.

Despite one of the biggest builds in potash inventory levels since the 2008-09 global economic meltdown, producers say they remain confident that demand will once again gather steam as the spring planting season in North America gets underway.

Analysts remain more cautious, though, as the last slump led to an extended standoff in potash markets as producers held off cutting prices for months, while farmers and dealers halted most purchases due to steep prices.

Dechka for now remains very optimistic and is projecting that Canpotex, which sold about 9.8 million tonnes of potash in 2011, will manage to mirror last year's performance.

"You're going to see a year much like 2011 but instead of the strong first three quarters of the year, you're going to have a strong last three quarters of the year," he said.

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