Australia's leading lithium miners are once again posting notably strong declines during trade on Thursday.
Here is the state of play in the lithium industry at the time of writing:
- The Altura Mining Ltd (ASX: AJM) share price is down 3% to 36 cents.
- The Avz Minerals Ltd (ASX: AVZ) share price has tumbled 2% to 25 cents.
- The Galaxy Resources Limited (ASX: GXY) share price has fallen 5% to $3.32.
- The Mineral Resources Limited (ASX: MIN) share price is down 5.5% to $17.98.
- The Orocobre Limited (ASX: ORE) share price has plunged 7.5% to $6.06.
- The Pilbara Minerals Ltd (ASX: PLS) share price is down over 4% to 88.2 cents.
What happened?
It isn't just the local lithium miners tumbling lower today. The shares of lithium giants Abermarle and Sociedad Quimica y Minera de Chile (SQM) fell 10% and 5%, respectively, in overnight trade.
With no news out of the lithium miners both at home or abroad, it appears as though today's decline is related to a note out of Morgan Stanley earlier this week that warned that an oversupply of lithium could hurt future prices.
According to the Financial Times, Morgan Stanley analyst Vincent Andrews has predicted that production increases in Argentina and Australia could add an additional 500,000 tonnes of supply to the market by 2025.
This is more than double the current annual supply of approximately 215,000 tonnes.
As a result of this increased supply, Andrews has forecast lithium prices to almost halve in value to US$7,332 a tonne by 2021 and then US$7,030 a tonne thereafter.
While such a sharp fall in prices wouldn't necessarily be a disaster, it would significantly weaken the margins of these miners and ultimately valuations.
What's next?
I suspect that the lithium miners will remain highly volatile over the coming months as the bulls and bears battle it out. While I have no plans to sell my Galaxy shares any time soon, I'll be keeping a close eye on supply levels and the prices being commanded by producers.
