Mineral Sands: Taking Root
The reason why Mineral Sand commodities were slower than the majority of other commodities to see prices appreciate was, in our opinion, related to their end use. Mineral Sands are predominantly used in household goods items, such as ceramics, paints, tiles, plastics and inks. As developing countries continue to transform and the wealth of the individuals in those countries has increased, so has their demand for household goods, and we see no reason why this trend will not continue in the future. You build a house before you paint it!
Another important development for the industry was that, prior to 2010, most Titanium Dioxide mineral production was subject to long-term ‘cap and collar' contracts, which held prices at a very low level. Since 2010 very few of these agreements were renewed due to the buoyant nature of the market.
In the past six months, however, there has been a notable shift in market sentiment (and a significant fall in the majority of Mineral Sand companies' share prices). This sentiment was largely driven by comments from Iluka, the major global Mineral Sands producer, in its June quarterly report.
Whilst we acknowledge that most of Iluka's points were valid, we believe that they are only short-term issues as we take the view that prices will still remain at record highs in comparison to the long-term historical price for many years to come. Going forward, prices are likely to remain in a solid trading band rather than continuing to spike (as has been seen over the past couple of years).
Eoin Treacy's view The majority of industrial commodities have had a rather difficult time of it over the last year. Economic slowdown in China, recession in Europe and slower than expected growth in the USA have contributed to lower than estimated demand for resources. This has resulted in many mining shares lagging the performance of their respective stock markets as other sectors outperformed. The challenge for mineral sands companies has been that while there is the prospect of considerably more demand in future, there is currently a surfeit of these resources.
Iluka Resources completed a Type-3 top, (as taught at The Chart Seminar) in April and has been ranging mostly below A$11 since August. It is currently retesting the lower boundary near A$8. A clear upward dynamic will be required to suggest demand is returning in this area and to offset current scope for additional downside.
Base Resources has a similar pattern of weakness. Kenmare Resources is falling towards a potential area of support near 30p but a clear upward dynamic will be required to suggest demand is returning near that area. Mineral Deposits Ltd broke downwards from it almost two-year range this week.