BAY STREET-Fertilizer suppliers may gain as demand rebounds

(Repeats Feb. 14 column without changes)

* Potash Corp better positioned as market tightens

* Strong pricing likely to boost Mosaic's results

* Rebound in nutrient demand benefits Agrium's retail arm (Figures in U.S. dollars unless noted)

By Euan Rocha

TORONTO, Feb 14 (Reuters) - North American fertilizer makers weathered dismal market conditions in 2009, but stocks in the sector may gain this year as early signs point to a strong recovery in crop nutrient demand.

Shares of Potash Corp (POT.TO), Agrium Inc (AGU.TO) and Mosaic Co (MOS.N) -- the big three of the North American fertilizer industry -- are little changed this year, despite recent data indicating tightening market conditions and stronger demand ahead of the spring planting season.

"We are in the sweet spot of owning fertilizer stocks as we head into the seasonally strong spring season," said Broadpoint AmTech analyst Edlain Rodriguez, who argues that improving global fertilizer demand will lift investor sentiment and propel stocks higher.

Potash Corp, the world's largest fertilizer maker, has consistently outperformed the Standard and Poor's 500 by an average of 12 percentage points between January and April, over the last six years, notes Rodriguez.

Rodriguez, who has "buy" ratings on all of the big three, believes their stocks are likely to rise about 25 percent above current levels, within a 12-month horizon.

The typically staid fertilizer sector became a Wall Street darling between 2006 and 2008, as stocks hit record highs amid the commodity price boom. But the shares crumbled as the global economic crisis crushed commodity demand and pricing.

Following a bumper North American harvest in 2009, the latest industry data indicates that inventory levels of essential crop nutrients are declining, while pricing has begun to tick higher.

North American potash inventories at the producer level have begun to trend steadily lower since October. And potash export conglomerate Canpotex, which recently signed a deal to supply China's Sinofert (0297.HK), is now fully committed on sales through the first quarter of 2010. [ID:nN08104080]

Furthermore, BPC, the potash export arm of Uralkali(URKA.MM) and Belaruskali, recently announced moves to increase potash prices for spot sales. [ID:nN03149519]

Thomas Weisel analyst Horst Hueniken believes that this bodes well for No. 1 producer Potash Corp.

"We believe investors should continue to build 'overweight' positions in Potash Corp stock," he said in a note to clients.

Hueniken has a $140 price target on shares of Potash Corp, which currently trade around $110 levels.

Inventories of other key fertilizers like diammonium phosphate (DAP) and urea are also tracking well below historic averages. DAP prices at $465 a tonne have already risen sharply from a low of $260 a year ago. [ID:nN22234305]

Mosaic, the world's largest producer of finished phosphate fertilizers, with an annual capacity of more than 10 million tonnes, looks poised to benefit from this run-up in prices.

Soleil Securities analyst Mark Gulley has a "hold" rating on Mosaic and believes its shares are likely to do well in the short term, though he remains bearish on the longer-term prospects of the fertilizer sector.

The long-term prospects of the sector are unclear, due to potash capacity expansions, volatility in food grain prices, unpredictable raw material costs and other factors.

That said, analysts remain confident that fertilizer stocks will do well in the short term, as nutrient demand rebounds in 2010.

Calgary, Alberta-based Agrium could be a big winner in such a setting.

Agrium, which produces nitrogen, phosphate and potash fertilizers, also happens to be the largest North American agricultural products retailer. A significant rebound in demand and a rising price environment are likely to boost volumes and margins in their retail business.

Atlantic Equities analyst Colin Isaac believes that Agrium is the best way for investors to play a recovery in fertilizer prices and volumes.

"Agrium is very cheap compared to the others and I like their retail business," said Isaac. "Plus, they've got a nice mix of urea, phosphate and some potash. So it's less of a bet on one individual nutrient." ($1=$1.05 Canadian) (Reporting by Euan Rocha; Editing by Jeffrey Hodgson and Rob Wilson)