Tough week for Iluka
Mineral sands producer, Iluka Resources, surprised the share market on Monday, for all the wrong reasons. An unexpected downwards revision in sales saw the company’s shares fall by a whopping 24%.
While the company’s shares have clawed back some ground, confidence in the company has been severely dented.
Iluka put its downward revision to sales of zircon, rutile and synthetic rutile down to “deteriorating economic outlooks” and discussions, obviously negative, with customers over second half volume requirements.
Underpinning the sales revisions is a major shift in strategy by Iluka, from long term sales contracts, to quarterly or spot pricing.
This strategy has been replicated by other major miners in markets like iron ore, and moves are afoot to extend it to commodities like alumina.
David Robb, Iluka’s managing director said that: “This approach has served the company well, given the level of price increases achieved during periods of strong demand. However, in times of global and regional economic uncertainty and turmoil, and with weakened business confidence levels, this can result in volatility in sales levels from period to period…”
Iluka’s thumping serves as a salutary reminder to the broader mining community that the headlong rush to shorter pricing periods can have a serious downside in times of falling demand and poor market sentiment.
While traditional multi-year contracts would leave much profit on the table in good times, they would cushion miners in falling markets.