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Potash sees slow rebound, shares dip after 'stinker' quarter

(Reuters) - Potash Corp of Saskatchewan (POT.TO) (POT.N) forecast a modest rebound in earnings for 2013, with key importers in China and eventually India resuming purchases of the crop nutrient potash, but the company's recovery will be more gradual than expected.

Potash Corp, the world's biggest fertilizer company, reported a surprisingly large drop in fourth-quarter profit on Thursday and gave a first-quarter outlook below Wall Street's forecast. The analysts' average estimate for all of 2013 was near the high end of Potash's range.

The company's shares were down 1.1 percent at C$42.71 in Toronto and off 0.4 percent at $42.85 in New York on Thursday afternoon, off earlier lows.

"My hope is they're being relatively conservative on the guidance for the full year," said analyst Spencer Churchill of Paradigm Capital. "If we see prices come up, we can start to see results get better."

The company reported a bigger-than-expected 38 percent drop in quarterly profit on Thursday.

"The fourth quarter was a stinker," said Potash Corp Chief Executive Bill Doyle. "We just didn't have much business."

Potash said it expected a first-quarter profit of 50 to 65 cents per share, compared with the analysts' average estimate of 68 cents, according to Thomson Reuters I/B/E/S.

For the full year, the company forecast a profit of $2.75 to $3.25 a share. That would be an improvement over a disappointing 2012, when Potash earned just $2.37, while the analysts' average 2013 view was $3.18.

A pause in potash buying by Chinese and Indian importers weighed on the company during the last two quarters. Potash is used to improve crop yields, and is the company's main product, ahead of nitrogen and phosphate.

Canpotex Ltd, which makes off-shore potash sales on behalf of Potash Corp, Mosaic Co (MOS.N) and Agrium Inc (AGU.N) (AGU.TO), announced a six-month supply deal with a subsidiary of China's Sinofert Holdings Ltd (0297.HK) on December 31, at a larger-than-expected price discount and volume.

Indian potash importers remain on the sidelines, with a deal expected in the first quarter, Doyle told analysts on a conference call. While Doyle does not expect India to drive global demand in 2013, it cannot afford to hold off on buying potash much longer without affecting food production, he said.

NEW ERA

Doyle also said he is willing to abandon the long-held practice of selling Canadian potash to China on a contract basis, which allows importer Sinofert Holdings Ltd (0297.HK) to lock up supplies at a market-low rate.

"If they don't perform, we're going to be spot (selling)," Doyle said. "Everyone's clear on that. It's a new era in China."

Potash Corp has idled several of its Canadian mines as North American stocks built up due to limited off-shore sales. Even with the expected rebound in potash demand, the company said it would need to increase downtime this year.

Those shutdowns look to weigh down the current first quarter and push the bulk of Potash Corp's recovery to later in the year, said analyst Mark Gulley of BGC Financial LP.

Following Canpotex's China deal, Potash Corp said it was seeing increased demand from most major markets. The company forecast global potash shipments of 55 million to 57 million tonnes industry-wide, well above 51 million tonnes in 2012, but down slightly from its November outlook.

Potash Corp said it expected continued challenges from India because of weaker demand from farmers due to high prices caused by lower government subsidies and a softer currency.

Net income for the fourth quarter fell to $421 million, or 48 cents per share, from $683 million, or 78 cents per share, a year earlier. The results include a charge of 4 cents per share for settling U.S. antitrust claims.

Analysts on average had expected Potash to earn 58 cents per share.

Shareholders' disappointment with the quarter was tempered by Potash Corp's increasing its quarterly dividend by one-third to 28 cents per share on Wednesday.

Fourth-quarter potash sales dropped 17 percent to 1.3 million tonnes, despite an increase in North America. Off-shore volumes plunged by more than one third to 700,000 tonnes.

Phosphate prices during the quarter were pressured by weak demand in India. Nitrogen sales were flat, and Potash Corp's average realized price for that nutrient eased slightly. (Reporting by Rod Nickel in Winnipeg, Manitoba, and Bangalore equities newsroom; editing by Lisa Von Ahn and Matthew Lewis)