UPDATE 2-Mosaic profit drops on weak China supply contract

Fri Jan 4, 2013 12:48pm EST

* EPS excluding items $1.02 vs. $0.93 - Thomson Reuters I/B/E/S

* Revenue fell 17 pct to $2.5 bln

* Sees Q3 potash volumes of 1.5 mln-1.8 mln tonnes

* Shares rise as Street touts earns beat

Jan 4 (Reuters) - Fertilizer producer Mosaic Co on Friday said its quarterly operating profit fell 30 percent and that it expects potash margins to fall further in its current quarter, a reflection of its recent low-priced contract with China.

China has been aggressively negotiating for lower potash prices, and in December Sinofert Holdings Ltd signed a deal with Canpotex Ltd - the offshore sales agency for Potash Corp, Mosaic and Agrium Inc - at a steep discount.

Mosaic Chief Executive Jim Prokopanko said he was disappointed Canpotex was not able to get higher prices in the China contract, and blamed low demand and smaller rivals.

"Others were willing to do something on pricing," he said in an interview. "However, we think volume is coming back."

Mosaic said it expects to sell between 1.5 million and 1.8 million tonnes of potash in its third quarter, with prices ranging from $370 to $400 per tonne, down from $443 per tonne in the second quarter.

Operating earnings for its second quarter fell 30 percent to $560 million from $797 million a year earlier.

The company reported net income of $629 million, or $1.47 per share, including tax benefits, for the quarter ended Nov. 30. It posted a profit of $624 million, or $1.40 per share, a year earlier.

Excluding items, the company earned $1.02 per share, beating analysts' expectations of 93 cents per share, according to Thomson Reuters I/B/E/S.

Revenue declined 17 percent to $2.5 billion.

Potash sales volume for the second quarter fell 17 percent to 1.5 million tonnes.

The Minnesota-based company cut its forecast for phosphate and potash sales last November, citing uncertain supply contracts with China and India.

Prokopanko said that, despite temporary weakness, he expects demand for fertilizer to grow.

"Basic farm fundamentals are starting to overtake a sentiment in the world," he said. "Farmers, at these high grain prices, don't want their plants to suffer without proper nutrition."

Mosaic shares rose 2.7 percent to $58.29 in afternoon trading on the New York Stock Exchange.

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