Two Iluka clients cancel contracts as downturn takes toll on resources

Mineral sands producer Iluka Resources says at least two of its customers have moved to cancel contracted shipments.

Iluka Resources has found some clients unable to honour contracts

The coronavirus downturn has begun to bite resources companies, with mineral sands producer Iluka Resources saying on Friday at least two of its customers had moved to cancel contracted shipments of its products.

Iluka said it had issued a default notice on one of its take-or-pay synthetic rutile contracts, after a customer failed to make good on promises to take 20,000 tonnes of the product in May.

It said a second customer had flagged a move to take lower volumes of the product — used as a pigment in paints, plastics, paper, foods, and other applications — than it was contractually obliged to pay for. Iluka said that may affect a 12,000-tonne shipment of synthetic rutile scheduled for ­September.

Iluka did not disclose where the customers were located, but the company sells most of its rutile and titanium dioxide products to US and European customers.

China’s economy has recovered strongly from the early impact of the virus, helping keep the price of iron ore and other key commodities relatively strong. But developed economies such as the US and Europe are still struggling to cope with the impact.

On Wednesday, National COVID-19 Coordination Commission chairman Nev Power warned a mining conference the impact of that slowdown would eventually hit demand for Australian resources exports.

Iluka’s minerals sands business is heavily leveraged to middle-class consumption patterns, and its move to lock in customers on firm take-or-pay contracts was seen as a significant step towards smoothing the impact of economic downturns that have previously taken a toll on the company’s finances.

But, in a warning sign for its broader outlook, Iluka said on Friday rutile sales volumes this year may fall below the 175,000 tonnes it has contracted to sell.

“Year to date, 78,000 tonnes of synthetic rutile have been sold under these contracts,” the company said.