VSA Morning Miner, 16/06/21
PYX Resources (ASX:PYX)
PYX Resources (ASX:PYX) has secured a further price increase for its high quality zircon products; the third this year and the largest taking the base price level to US$1,750/t. Today’s announced increase of US$210/t is a step change from the initial increments of US$70/t and US$75/t earlier in the year. It highlights that conditions are tightening fast in the zircon market driven by ongoing operational issues at Rio Tinto’s Richards Bay operation compounding the destocking impact of 2020.
Zircon prices are now at their highest point since 2013 and our investment case for PYX is in large part based on the strong outlook for the zircon price. We expect prices to exceed the last decade highs above US$2,100/t. In that last rally Indonesian producers of low grade concentrate provided swing supply, however, changes to Indonesian export rules mean that now only producers of 65%+ zircon concentrate may sell to international markets. Typically Indonesian producers have only been capable of producing a c40-50% product so this change dramatically reduces this swing producer potential. With inventories in China, the main consumer, at minimum levels after 2020 and strong demand for end use products such as semiconductors combined with the constrained supply the outlook for pricing is stronger than the last zircon squeeze, in our view.
Currently our projections are based on a US$1,450/t average for 2021, up from US$1,330/t in 2020 with a forecast US$1,800/t in 2022 and with volumes weighted to H2 2021, the realised price is likely to exceed our current forecast.
We reiterate our A$2.60/sh. target price and Buy recommendation.
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