Why the Iluka (ASX:ILU) share price is down today

The mineral producers shares look set to close out the week in the red

| More on:
sad looking miner holding his head down

Image source: Getty Images

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.

At the current price, Iluka has a market capitalisation of $3.65 billion and trades at a price-to-earnings ratio of 35.

Should you invest $1,000 in Iluka right now?

Before you consider Iluka, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Iluka wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News