Zircon Prices to Keep Rising in the Next Year

2005-09-21

Regular readers of AIR will no doubt know by now that market conditions for zircon producers remain very buoyant, while the outlook for the coming two years seems to be all about sunshine as well. Commodity experts at Smith Barney Citigroup recently updated their assumptions for the zircon market and if anything, their conclusions only add further to the bullish sentiment surrounding the likes of Iluka and Bemax Resources. Citigroup believes that substitution and reduced unit use, which have been important negative factors for zircon usage in past cycles, have become less of a threat in the current cycle. The world's largest producer of zircon, Iluka recently indicated its intention to raise prices by US$100/t in 2006. This would take the price to US$725/t. Imagine, only a few years ago, one could buy the metal at US$240/t. Citigroup analysts have now brought their forecasts closer to Iluka's and adopted a 2006 zircon price of US$700 in their model. In addition, the specialists now assume that prices are sustained through 2007, and do not decline until 2008. This follows on from their expectation of ongoing supply shortages and limited substitution pressures. The experts suggest that one of the reasons for the limited substitution pressures may be that the price in Euro has not increased as much as in US dollar.