The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) may be making a solid gain during morning trade on Tuesday, but not all shares have managed to follow the market higher.
One group of shares that have fallen significantly are the lithium miners.
Here is the state of play in the industry at the time of writing:
- The Altura Mining Ltd (ASX: AJM) share price has fallen 5% to 36 cents.
- The Avz Minerals Ltd (ASX: AVZ) share price has tumbled 5% lower to 25.7 cents.
- The Galaxy Resources Limited (ASX: GXY) share price is lower by 5.5% to $3.25.
- The Kidman Resources Ltd (ASX: KDR) share price has fallen 5% to $1.96.
- The Lepidico Ltd (ASX: LPD) share price is down almost 5% to 5 cents.
- The Mineral Resources Limited (ASX: MIN) share price is off 2% to $19.10.
- The Orocobre Limited (ASX: ORE) share price has plunged 7.5% to $6.44.
- The Pilbara Minerals Ltd (ASX: PLS) share price is down over 3% to 82.2 cents.
What happened?
Overnight the shares of lithium giants Abermarle and Sociedad Quimica y Minera de Chile (SQM) fell sharply after a note out of Morgan Stanley warned that an oversupply of lithium could hurt future prices.
According to the Financial Times, Morgan Stanley believes that increased production from projects in Argentina and Australia could add an additional 500,000 tonnes of supply to the market by 2025. At present annual supply stands at approximately 215,000 tonnes.
In light of this, the broker believes that lithium prices will fall from US$13,375 a tonne today, to US$7,332 a tonne by 2021 and then US$7,030 a tonne thereafter.
Should you buy the dip?
The future supply of lithium and whether it will outstrip demand in the future is a matter of fierce debate.
Whilst I believe companies like Abermarle and SQM will manage new supply additions carefully in order to maintain equilibrium in the market, that is of course easier said than done.
I still believe that the lithium miners, and Galaxy in particular, are attractive investments at present and expect them to generate bumper free cash flows for at least the next couple of years. This could make it worth picking up Galaxy on the cheap today. Though it is worth remembering that it is a high risk and volatile investment, which could make it unsuitable for the average retail investor.
