Shares in Iluka Resources have plunged to 18-month lows after the mineral sands miner surprised the market with a sales downgrade and dire short-term outlook for the global economy.
The downgrade is a sharply more pessimistic view than that presented at its annual general meeting less than seven weeks ago, when Iluka said it still expected a material increase in earnings and free cash flow in 2012.
Managing director David Robb said on Monday that demand for the company’s products had plummeted, with activity involving titanium dioxide – used in paints, plastics and paper – coming to a standstill.
There were clear indications that global output was falling with the United States sucked into a downward spiral of the euro zone, along with China’s malaise as it goes through a leadership transition, he said.
Mr Robb pointed to falls in manufacturing figures and other business indicators along with last week’s dramatic interest rate cut in China.
“We are considerably more pessimistic about the performance of major global economies and perhaps, more relevantly, their future trajectory than we were at the beginning of the year or indeed were two months ago,” he said in a teleconference.
“The pigment market has, in essence, gone from full steam ahead to full stop in a little over eight weeks.”
Mineral sands are used in paints, electronics, nuclear reactors and deodorants along with the decorative ceramics industry.
Nine months of consecutive falls in pricing of Chinese property have hurt demand for the mineral sands industry.
Iluka said it expected to sell between 510,000 and 720,000 tonnes of zircon, rutile and synthetic rutile in calendar 2012, which would be down from the 1.04 million tonnes in 2011.
The previous estimate in May was about 935,000 tonnes for 2012.
Mr Robb said Iluka’s customers last year were confidently building inventory and running plants for maximum yields, but they were now running inventory down.
“Therefore, we have just-in-time buying to supply only from firm orders,” he said.
Investors abandoned the stock, which fell $2.82, or 24.1 per cent, to $8.88, representing a 43 per cent fall so far for the 2012 calendar year.
Iluka was a darling of the Australian stock market in 2011, when it leapt into the top 50 largest stocks, improving by as much as 70 per cent in value, after starting 2011 at $9.14.
Despite Monday’s events, Mr Robb said the company still had headroom to adjust production to reduce costs while conditions were poor.
He said the long-term view about demand for mineral sands was still positive, including recent research by consultants McKinsey that forecast that 100 per cent of the world’s current office space would need to be built by 2025 through growth or replacement.
Morningstar senior equities analyst Matthew Hodge said he was not concerned about Iluka’s viability but that other industries, including iron ore mining, should be worried about Mr Robb’s comments.
“The iron ore seems to be defying gravity because when countries start posting below-average growth, infrastructure is usually hit hard,” Mr Hodge told AAP.
