* Lower demand, higher production cost hurt profits
* Production drops to 1.8 million tonnes from 2.2 million (Adds details and background)
AMMAN Feb 17 Jordan's Arab Potash Company , one of the world's largest producers of potash, said 2012 net profit fell by more than a third as costs rose, while falling global demand weighed on output.
Profits fell 34 percent to 198.8 million dinars ($280 million), the firm said in a statement.
Chairman Jamal al Sarayrah said the results reflected the drop in global demand for potash, a main ingredient for fertiliser, along with a "rise in production costs due to higher electricity, water, fuel prices and wages."
Potash Corp of Saskatchewan, the world's largest producer, owns 27.9 percent of Arab Potash. Several Arab states, including Saudi Arabia and Kuwait, have minority holdings.
The firm's production of potash dropped 1.8 million tonnes from around 2.2 million tonnes in 2011, according to industry executives.
The results are the first fall in profits since 2009 when Arab Potash began a gradual recovery driven by robust prices due to higher demand for fertiliser, especially in India and China.
($1=0.709 dinars) (Reporting by Suleiman Al-Khalidi; Editing by John Stonestreet)