* North America potash inventories down sharply in Feb
* Inventories now 16 pct below prior five-year average
By Euan Rocha
TORONTO, March 16 (Reuters) - North American potash inventories at the manufacturer level fell sharply in February, as dealers restocked supplies of the crop nutrient ahead of the spring planting season and overseas sales gained momentum.
Potash inventories fell by more than 550,000 tonnes for the second straight month, to a level of roughly 2 million, the lowest level in over a year, data from Potash Corp of Saskatchewan (POT.TO), the world's largest producer, show.
North American inventories have now fallen for a fourth straight month and inventories now stand 16 percent below the prior five-year average, according to the data issued late on Monday.
This is also the first time North American potash inventories at the producer level have fallen below the five-year average since November 2008.
North American potash inventories remained well above the historical average through the course of 2009, as producers were reluctant to lower potash pricing, despite a sharp decline in demand.
Potash traded at about $150 a tonne through the first half of the last decade, but the price soared to more than $1,000 a tonne at the height of the commodity boom in 2008.
The market began to sour in the latter part of 2008, as farmers, stung by the credit crunch and falling grain prices, sharply cut fertilizer use.
The price of potash began to retreat in 2009, as producers were forced to cut prices in a bid to boost demand. But pricing only bottomed out in December, when European exporter BPC inked a deal with China to supply potash at $350 a tonne. [ID:nLDE60601B]
The lower prices have helped draw dealers and other players back into the market. And the latest inventory data is likely to boost investor confidence that restocking has begun to gain traction, especially as inventory levels have fallen below the five-year average.
The latest data bodes well for potash miners and investors in the sector, as tightening inventories are likely to allow producers to gradually push prices higher.
Potash Corp supplies Canpotex with almost 54 percent of the consortium's potash requirements, with Mosaic and Agrium contributing about 37 percent and 9 percent respectively.
Last month, Canpotex signed a deal to sell about 350,000 tonnes of potash to China's Sinofert (0297.HK) at an undisclosed price, while its largest export rival BPC signed a similar deal with Indian buyers last week. [ID:nN08104080] [ID:nLDE62B1OT]
Potash Corp recently also raised its first-quarter earnings outlook, citing a strong rebound in potash demand. [ID:nN11254666] (Reporting by Euan Rocha; Editing by Clarence Fernandez)