The Iluka Resources Ltd (ASX: ILU) share price has moved through today’s session firmly in the red, slipping further out of the money as the day progresses.
At the time of writing, Iluka shares are exchanging hands at $8.45, having come off the intraday high of $8.72 soon after the market open.
With no market sensitive information released on the company today, let’s take a closer look at what could be driving the mineral producer’s price action today.
Brokers – effects of Rio Tinto’s force majeure
According to research conducted on 7 July by analysts Chris Perrella and Richard Bourke of Bloomberg LP, titanium oxide producers such as Iluka may “face higher ore input costs in the near term due to Rio Tinto (ASX: RIO)’s force majeure on 30 June“, for its Bay Minerals project.
This comes as similar reports from investment bank JP Morgan advocating that higher market prices for mineral sands may be needed to offset these input costs.
The report states:
…we [JP Morgan] need to run 26% higher [mineral sands] prices versus our base case forecasts over the next 2.5 years to reach the 12% uplift in the ILU share price achieved today.
Consequently, both reports agree on the point that operations in South Africa actually “represent almost 30% of high-grade titanium oxide feedstock ore outside of China”.
Therefore, both teams of analysts believe the cost of production in the industry will increase due to the forces of supply and demand, negatively impacting Iluka’s bottom line.
Iluka shares have slipped 2.2% into the red since the release of this research, having jumped 10% on the day of Rio’s announcement.
Iluka share price snapshot
The Iluka share price has spent this year to date well into the green, posting a return of 30% at the time of writing, outpacing the S&P / ASX 200 Index (ASX: XJO)’s return of 10% on the nose.
The Iluka share price has also outpaced the broad index on a single year basis, posting a return of 82% versus 22% at the time of writing.