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Mill manager Josh Wheeler examines a pile processed potash at the Mosaic Potash Colonsay mine storage facility in Colonsay, Saskatchewan

DAVID STOBBE

North American potash inventories at the manufacturer level fell sharply in January, as dealers restocked supplies of the crop nutrient ahead of the spring planting season and overseas sales gained momentum.

Potash inventories fell by over 550,000 tonnes to roughly 2.5 million tonnes, the lowest level since December 2008, according to data provided by Potash Corp. of Saskatchewan , the world's largest producer.

The bullish data pushed shares of Potash Corp., Mosaic Co. and Agrium Inc. slightly higher Wednesday morning, even as weaker grain pricing weighed on stock prices.

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North American inventories have now fallen substantially for a third straight month and inventories are now only 6 per cent above the prior five-year average, according to the data issued by Potash Corp. late Tuesday.

Through the course of 2009, North American potash inventories remained well above the historical average, as producers were reluctant to lower potash pricing, despite a sharp decline in demand.

Potash traded at about $150 (U.S.) a tonne through the first-half of the last decade, but the price soared to over $1,000 a tonne at the height of the commodity boom in 2008.

The market began to sour in the latter part of 2008, as farmers stung by the credit crunch and falling grain prices, sharply cut fertilizer use.

The price of potash began to retreat in 2009, as producers were forced to cut prices in a bid to boost demand. But pricing only bottomed out in December, when European exporter BPC inked a deal with China to supply potash at $350 a tonne.

The lower prices have helped draw dealers and other players back into the market. And the latest inventory data is likely to boost investor confidence that restocking has begun to gain traction at the dealer level.

"For a second consecutive month, potash inventories declined sharply, reflecting the recent uptick in demand in the U.S. as well as global buyers' confidence that a floor price has been reached post the BPC/China deal," Broadpoint AmTech analyst Edlain Rodriguez said in a note to clients.

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The latest data bode well for potash miners and investors in the sector, as tightening inventories are likely to allow producers to gradually push prices higher.

Potash Corp., Mosaic and Agrium are the three main potash producers in North America. The companies also own Canpotex, which acts as their export marketing agent.

Potash Corp. supplies Canpotex with almost 54 per cent of the consortium's potash requirements, with Mosaic and Agrium contributing about 37 per cent and 9 per cent respectively.

Earlier this month, Canpotex signed a deal to sell about 350,000 tonnes of potash to China's Sinofert at an undisclosed price.

Mr. Rodriguez raised his quarterly earnings estimates on Potash Corp. and Mosaic, in light of the recent Canpotex sale to China.

"We expect the long-awaited global volume rebound to occur as application rates return to near-normal levels," said Mr. Rodriguez.

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