September 23, 2009 / 7:32 PM / 10 years ago

POTASH-Canadian production seen back to normal in 2010

(This story is part of a special package highlighting the global potash industry.)

* Canada production seen around 17 mln tonnes in 2010

* Mine expansions in Saskatchewan remain on track (In U.S. dollars unless noted)

By Rod Nickel

WINNIPEG, Manitoba, Sept 23 (Reuters) - Canadian potash production should recover in 2010 as demand from China and India picks up, after a year of output cuts and mine worker layoffs.

Big consuming nations need potash to grow high-yielding crops to feed their burgeoning populations. That fundamental demand should return next spring as the global economy moves past the worst of the recession, said Kevin Stone, senior commodity analyst with Canada’s Natural Resources Department.

“I’m 100 percent confident it will be normal,” Stone said. “If we want to maintain living standards, if we want to see further (crop) production, we need fertilizer,” he said, adding that with increased demand, the price of potash should also rise in spring from its current $460 level.

Canadian production should reach 17 million tonnes in 2010, matching its 2008 level, Stone said. Through the first six months of 2009, Canada produced just 3.5 million tonnes.

Production in the rest of the world — Russia, Belarus, Israel, Germany and Jordan — should also return to normal, he said, bringing global production to about 55 million tonnes.

The government of the western Canadian province of Saskatchewan, one of the world’s richest potash regions, also forecasts a return to normal production and strong medium- to long-term demand.

Mine expansions planned over the next 11 years by all three major producers in Canada — Potash Corp POT.TO, Mosaic (MOS.N) and Agrium AGU.TO — remain on track, said Kent Campbell, deputy minister of Saskatchewan’s Energy and Resources Ministry.

“There’s been short-term pain for all us ... but longer term things are looking very good for Saskatchewan with respect to potash,” he said.

In August, Saskatchewan dropped its price assumption by $100 to $456 per tonne, reflecting lower-priced Russian and Canadian sales to India [ID:nBNG368711].

Australia’s BHP Billiton BHP.L plans the world’s biggest potash mine in Saskatchewan, but the time it takes to build it and reach significant production means it won’t affect fundamentals for at least six years, Stone said.

The fact no new potash mine has been built in decades makes it hard to predict what price level potash would have to hold to ensure the new mine is viable, but conventional wisdom would suggest a price around $500 a tonne, Stone said.

The project is in the pre-feasibility stage and will not be approved for at least 12-18 months, BHP has said. The company declined comment on its price assumption. (Editing by Janet Guttsman)

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