April 16, 2012 / 1:47 PM / in 5 years

UPDATE 1-North American potash inventories rise in March

* Inventories 49 pct above prior 5-year average

* Analysts see demand picking up in second quarter

April 16 (Reuters) - North American potash inventories at the producer level, a key indicator of market sentiment, rose surprisingly in March ahead of the region’s spring planting season, according to the world’s top producer of the crop nutrient, Potash Corp .

Stockpiles of potassium chloride - the key crop nutrient more commonly known as potash - rose more than 9 percent to 3.29 million tonnes in March, which is usually when a seasonal demand uptick leads to a pullback in inventory levels.

Inventories of the crop nutrient at the producer level now stand 49 percent above the previous five-year average, according to data posted on Potash Corp’s website.

Despite the surprise build, analysts remained bullish on potash demand and attributed the stockpile build-up to the timing of potash shipments to China, which have been deferred into the second quarter.

“We see the March inventory build as roughly equal to the deferred first-quarter China volume that will likely now be quickly drawn down by the significantly larger monthly shipments to China in the second quarter,” said Morgan Stanley analyst Vincent Andrews in a note to clients.

Last month, Canadian and Russian potash miners signed a contract with Sinofert Holdings to supply the Chinese fertilizer maker with potash in the second quarter. The supply deal was a boost for potash miners as global potash markets have been largely stagnant for months and many large miners have scrambled to cut potash output in a bid buoy prices.

“Spot buying was almost non-existent until the Chinese contracts settled in the middle of March and orders take time to ship,” wrote Credit Suisse analyst Elaine Yip in a research note.

“We anticipate robust shipments and significant inventory drawdown over the next couple of months,” Yip said, adding that spot sales to Brazil and Asia have begun to pick-up.

The latest data also indicated that pricing for standard grade potash is holding relatively steady around the $500 a tonne mark.

The vast majority of the potash produced in North America is mined in the Western Canadian province of Saskatchewan, where Potash Corp is headquartered. Minnesota-based Mosaic Co and Calgary, Alberta-based Agrium Inc are the other two large potash miners in the province.

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