May 7, 2009 / 5:56 PM / 10 years ago

UPDATE 1-Potash Corp forecasts tight potash supply

* Supply expected to be tight for 5-10 years

* Demand expected to recover in second half 2009

* Says its potash gross margin could reach $25 bln (Adds details, background)

SASKATOON, Saskatchewan, May 7 (Reuters)- Potash Corp. of Saskatchewan Inc POT.TO expects the global supply of potash fertilizer to be tight for the next five to 10 years, despite a massive planned increase in its production capacity.

“Fertilizer customers have been slow to return to the table, but they cannot defer purchases indefinitely,” President and Chief Executive Bill Doyle told the company’s annual meeting.

“Many major markets are showing signs of having destocked their inventories and must rebuild their supplies.”

Potash demand, which has been hit by the global recession and falling grain prices, will grow in the second half of 2009 and rise in 2010, Doyle said. As demand grows, Potash Corp, the world’s biggest producer, will start to reverse production slowdowns, he said.

The company’s reasons for optimism center on a global rebound in the need for more fertilizer to increase food production for a growing population, particularly in China and India, Doyle said.

“We know the current slowdown will pass and that a strong demand surge is likely to follow,” he said.

“It’s like watching someone pull back on the pocket of a slingshot. When this is unleashed, we expect a significant rebound that will carry us forward.”

Potash Corp is spending C$7 billion ($6 billion) on expansion and upgrading projects in the Canadian provinces of Saskatchewan and New Brunswick. They will give the company 18 million tonnes of capacity by the end of 2012, more than double the capacity when it started its expansion program in 2005.

That production could sell at higher prices, which could drive the company’s potash gross margin to $25 billion annually, said Doyle, adding he was not forecasting that figure.

Negotiations on new potash contracts with China and India, two major buyers, are expected to conclude by the end of the second quarter, Doyle said.

Late last month the company reported a 46 percent drop in first-quarter profit and lowered its forecasts amid weak demand for crop nutrients.

Fertilizer prices soared in early 2008 on surging demand, tight inventories and record grain prices. But the global credit crunch and the economic downturn weighed on the agricultural sector, and grain and nutrient prices tumbled as farmers deferred applying fertilizer.

$1=$1.17 Canadian Reporting by Rod Nickel; editing by Rob Wilson

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