Russia-India deal boosts potash price forecasts

WINNIPEG, Manitoba, March 24 (Reuters) - North American potash producers are eyeing even higher prices in the hot world fertilizer market after Russian competitors signed a major deal with India last week, analysts said on Monday.

"It's significant news for the potash market around the world," said Ashley Harris, manager of investor relations with Agrium Inc (AGU.TO: Quote, Profile, Research).

"It definitely sets a precedent about the types of increases expected," Harris said.

India typically negotiates yearly deals after China, the world's largest volume importer, inks its annual contract. China normally buys at a discount to prices paid by importers in other markets like Brazil and southeast Asia.

But tight world potash supplies combined with pressures to control food inflation this year have prompted India to leapfrog ahead of China to secure annual supplies with Belarussian Potash Co, which trades for Uralkali (URKA.MM: Quote, Profile, Research) and Belaruskali.

The deal was done at the going spot market price of $625 per tonne (delivered) -- more than double last year's contract price of $270 per tonne.

Canadian producers Potash Corp (POT.TO: Quote, Profile, Research), Mosaic Co (MOS.N: Quote, Profile, Research) and Agrium negotiate export deals to India and China jointly at values that are usually similar or higher to the Russians.

"I expect that China, being the largest buyer in the world, would buy at a discount to this (India price), but it definitely sets something of a benchmark," Harris said.

Potash Corp stock was up 5 percent, or C$7.26, at C$154.83 and Agrium was up C$2.45 at C$65.25 on the Toronto Stock Exchange, with Mosaic up $3.30 at $95.31 on the New York Stock Exchange.

RBC Capital Markets upgraded top volume producer Potash Corp to a "top pick" because of the India deal.

"We expect the Indian contract settlement to lead to a substantial price increase in China," analyst Fai Lee said in a note to clients.

JP Morgan analyst David Silver said he now expects potash producers to negotiate a price hike of $200 to $250 per tonne to China from his 2007 estimated price of $260 per tonne -- up from his earlier estimate of a $150-$200 per tonne increase.

"North American potash stocks remain near record lows, and major suppliers are essentially sold out," Silver said in a research note.

Food inflation pressures could force China to settle its contract next month, said a fertilizer analyst who declined to be named, although the country has enough inventory to wait until May or June for a new deal.

The fertilizer analyst expected China would continue to get a discount to world prices because producers don't want to risk losing a buyer with 10 million tonnes of annual consumption.

"To think that Brazil, India and southeast Asia ... could easily take that up for the next five years is wishful thinking," he said.

But a steep discount for China would cap miners' ability to eke out further price increases from other buyers, he noted