A new "super-cycle" of upgrades to shares in potash groups could be imminent, if the market recovers fulfils some obsevers' hopes of a rapid recovery, broker ICAP has said.

With China, the world's biggest potash consumer and importer, having signed a long-awaited supply deal, and talks imminent on a fresh deal with India, which has no domestic production, prices appeared "close to bottoming", the London-based broker said.

Improved crop markets should also stimulate demand for nutrients among farmers, the broker said, citing comments from Canpotex, the Canadian potash consortium, that fertilizer prices should rise alongside those of soft commodities.

"If both prices and volumes spike in 2010 then a new super-cycle of earnings upgrades could be imminent," the broker said.

Share rebound

ICAP's note, which restated a "positive stance" on shares in German potash group K+S, follows forecasts from other analysts, such as those at Credit Suisse, of a rapid upturn in potash demand this year.

Shares in Canada's Agrium have risen 5.7% this month, with Israel's ICL adding 7.8% and America's Intrepid Potash jumping 14.3%.

After an initial in disappointment at the BPC-China deal before Christmas, they have staged a sharp recovery this month on hopes that the contract would end a stand-off by farmers hoping for prices to come down even further from their 2008 peak.

China typically receives a greater discount than other buyers because of the size of its orders.

'True and alarming'

However, not all observers have taken an upbeat view of the deal, and of a refusal by Canpotex to follow BPC in selling to China at lowball prices.

Mosaic that China was "becoming less important" in global potash trade were "both true and alarming", Sterne Agee analysts said.

"If China is becoming less important, it is because it is expected to import less potash in the future," the US broker said.

"As every major potash producer rushes to spend (billions) to expand potash capacity, the single biggest importer's needs are declining – we struggle to find the positive in that shift in trade flows."

When China turned from phosphate importer to exporter a few years ago, "its impact on the market was so great that major producers, including Mosaic, permanently closed capacity in order to rebalance the market".

"In an era where global potash capacity is rising significantly, reduced Chinese imports are a significant potential negative to global potash price stability."

Sterne Agee said it was neutral on Mosaic shares, highlighting the group's preeminence in phosphate fertilizers, for which the outlook appeared brighter.

Agrimoney