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Iluka May Increase Production as China, U.S. Demand Recovers

Iluka Resources Ltd. (ILU), the world’s biggest zircon producer, may increase output as demand recovers in China and the U.S.

“It will be a progressive response to a progressive return in demand,” Chief Executive Officer David Robb said today in a phone interview. “It’s not like all of a sudden the light switch goes on and we go back to running flat out.”

Iluka, based in Perth, Australia, expects demand to improve as consumers rebuild stocks in China and U.S. residential construction picks up. Sales in the U.S. and Europe this year are forecast to exceed those in 2012, while China demand in 2013 is almost equal to last year’s, Robb said at the company’s annual general meeting in Perth today.

Zircon is set for a rebound in demand and prices, Credit Suisse analysts Matthew Hope and Martin Kronborg said in a note to clients on May 14. The mineral, used in ceramics including floor and wall tiles, has fallen to $1,200 a metric ton this year from $2,500 a ton in the first eight months of 2012, Robb said. Prices have now stabilized, he said.

“Price stability is an important first stage, which provides confidence that underpins volumes coming back,” Robb said. “Those two things together are a precondition later for potential price increases.” He declined to give an estimate for prices at the end of 2013.

Iluka may increase processing of stocks of mineral sands that have already been mined and concentrated to boost output of finished products, Robb said. A decision to resume operations at the company’s halted Eneabba mine in Western Australia will be taken after the company uses its current inventory, he said.

Earnings in 2013 will be “materially lower” than last year because of lower prices, Robb said at the shareholders’ meeting. Iluka’s profit in 2012 fell 33 percent to A$363.2 million ($355.3 million).

Iluka cut output of zircon and its rutile and synthetic rutile products in February by half as housing starts in the U.S. faltered and growth in China slowed. Rio Tinto Group (RIO) said Feb 14. it would halt its Richards Bay Minerals zircon and rutile operations in South Africa.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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