POTASH-INTERVIEW-India fertilizer imports seen down 17 pct

* Unusually dry monsoon season expected to slash demand

* India may not exercise option to import more potash

* IFFCO eyes overseas joint ventures to secure potash (In U.S. dollars unless noted)

MUMBAI, Sept 24 - India's fertilizer imports may drop 17 percent in fiscal 2010 as the country's driest monsoon season in decades holds back demand, dimming prospects of it exercising an option to buy more potash abroad, the head of a top fertilizer company said.

A 5 to 7 percent drop in fertilizer demand, is likely to result in the much sharper drop in imports of crop nutrients like phosphate and potash, said U.S. Awasthi, managing director of Indian Farmers Fertiliser Co-operative Ltd, or IFFCO.

India's monsoon season, which lasts between June and September, plays a huge role in determining annual agricultural output, as many farmers rely on the rain to irrigate fields.

Heavy rainfall during the peak growing period is ideal, but when drier conditions prevail farmers tend to cut back on fertilizer applications, and this year's monsoon is the driest since 1972.

"With the monsoon situation being what it is, I do not see us exercising the option to buy more potash this year at least," Awasthi said in an interview.

He said the likely contraction in demand would hurt imports of phosphate and potash, though not domestic output.

India imported about a third of the 51 million tonnes of fertilizer it used in the fiscal year to March 2009. It imported about equal quantities of nitrogen, phosphate and potash.

While nitrogen-based urea, which accounts for more than half the usage in India, is largely made domestically, most phosphate fertilizers and all potash fertilizers are imported. India is the world's third-largest user of crop nutrients.

Phosphate accounted for 20 percent of the country's usage, with potash accounting for 8 percent.

Earlier this year, Indian companies negotiated a significant price cut in potash from a grouping of global suppliers.

Indian buyers, including the country's top potash importer, Indian Potash Ltd, secured contracts for about 5.5 million tonnes at $460 a tonne, including an option to buy more, Awasthi said. IFFCO owns 34 percent of Indian Potash.

More than a third of India's farms have irrigation facilities, insulating them from drought. That should cushion the impact of weak monsoon rains on fertilizer demand.

"On irrigated land, there will be no effect of the delayed monsoon. Application of fertilizers is over for the June-August season. So the effect of the monsoon will only be seen in January, the third season when fertilizers are applied," Awasthi said.

To be sure, the government's assessment of fertilizer inventories at the end of September suggests that farmers may require more than is currently available.

India's requirement for fertilizer in September far exceeded the inventory on hand as of Sept. 10, according to data with the Ministry of Agriculture. [nBOM154925]

IFFCO, which is expanding its capacity to produce nitrogen-based urea fertilizer and is investing in phosphate assets overseas in a bid to secure supply, has now turned its attention to potash.

Awasthi said IFFCO was not considering a potash acquisition but was looking at setting up joint ventures in some countries, including Canada.

"We are evaluating a few projects, but we have not zeroed in on any. We are working on potential joint ventures. Potash is not simple. It is a kind of risky venture. We have to evaluate very carefully," he said.

"Canada is an option. We are also looking at other countries that are closer to India."