(Refiles to fix spelling of company name to Dahlman from Dalham in paragraph 11)
* Analysts expect Q3 earnings of $0.80 a share
* Investors looking for outlook on 2010 demand, pricing (In U.S. dollars unless noted)
By Euan Rocha
TORONTO, Oct 21 (Reuters) - Potash Corp of Saskatchewan (POT.TO), the world's largest fertilizer producer, is expected to report a sharp decline in quarterly profit on Thursday, but investors are expected to ignore the results and focus on the company's insight on global potash demand and pricing.
Potash Corp reported a five-fold increase in profit a year ago, when prices for the crop nutrient were at all-time highs and market conditions were tight. The economic downturn and the collapse in grain prices has since resulted in the sharpest drop in potash demand on record, and drastic production cuts.
While analysts believe the worst of the demand decline is over, some suggest that pricing has yet to bottom, as key negotiations with China, the world's largest importer, are still ongoing.
"I think guidance for the fourth-quarter will be of some limited interest. I think estimates are too high and the numbers will have to come down ... But, it will be interesting to see what the company is prepared to say at this juncture about next year," said Soleil Securities analyst Mark Gulley.
U.S. fertilizer producer Mosaic Co (MOS.N) reported a 91 percent drop in its first-quarter profit earlier this month, but expressed optimism that farmers would increase fertilizer purchases in the near future. [ID:nN05370862]
In the last three months, Potash Corp has twice lowered its 2009 earnings forecast. The company, which initially forecast third-quarter earnings of 80 cents to $1.20 a share, is now expecting a profit at the low-end of this range.
Analysts have all trimmed their expectations in light of the warnings and now expect the company to post earnings of 80 cents a share, according to Thomson Reuters I/B/E/S.
While recent data indicates that North American potash inventories at the producer level have declined for three consecutive months, inventories are still 142 percent above the five-year average. [ID:nN15272882]
When India's importers of the crop nutrient inked supply contracts in July at $460 a tonne this year, many expected other international buyers and domestic distributors to rush back into the market to secure supplies.
But the buyers' response has thus far been tempered, as many were forced to book huge writedowns on potash inventories when prices began to fall this year. The spot price for potash, which peaked at over $1,000 a tonne in 2008, is currently at about $500.
"So far, these price concessions have not yet brought about the desired demand response, as inventory remains elevated on a global basis," Dahlman Rose & Co analyst Charles Neivert said in a note to clients.
Analysts believe the Chinese contract price will set a floor on pricing, as China typically gets the lowest price because of the large volumes it imports.
Potash Corp Chief Executive Bill Doyle said in a recent interview that he expects a contract with Chinese importers to get settled before the end of 2009. [ID:nN21299092]
"I think investors have had their eyes trained on 2010 for a while now, I think 2009 has been written off as pretty much a lost year for the (fertilizer) sector," said Morningstar analyst Ben Johnson.
"Given that we have some pretty sizable crops coming out of the ground this year, I'd be hard pressed to think that farmers are going to back away from more appropriate nutrient levels come 2010," he said. (Reporting by Euan Rocha; editing by Rob Wilson)