Although they are generally regarded as some of the most volatile shares on the local market, the lithium miners have had an especially bumpy start to 2018.
Unfortunately for investors this bumpy ride has ultimately been on a downwards trajectory, leading to some sizeable declines.
Here is their year-to-date performance:
- The Altura Mining Ltd (ASX: AJM) share price is down 13% since the start of the year to 39 cents.
- The Galaxy Resources Limited (ASX: GXY) share price has fallen 17% to $3.20 since the turn of the year.
- The Kidman Resources Ltd (ASX: KDR) share price is down 8.5% year-to-date to $2.01.
- The Mineral Resources Limited (ASX: MIN) share price has lost 19% of its value in 2018 to $17.28.
- The Orocobre Limited (ASX: ORE) share price has plunged 15.3% to $5.90 since the start of the year.
- The Pilbara Minerals Ltd (ASX: PLS) share price is down a massive 25% year-to-date to 88.2 cents.
What happened?
The majority of these declines can be attributed to a research note out Morgan Stanley last month that led to heavy selling of lithium mining shares.
That note suggested that rising production in Australia and Argentina in the future could lead to an oversupply of lithium. Morgan Stanley analyst Vincent Andrews has predicted an additional 500,000 tonnes of supply will hit the market by 2025. This compares to current annual supply of approximately 215,000 tonnes.
In light of this increased supply, Andrews has forecast lithium prices of US$7,332 a tonne by 2021 and then US$7,030 a tonne thereafter.
As a comparison, in the first-half of FY 2018 Orocobre reported that the average price received for its lithium was US$11,415 per tonne. Furthermore, management has forecast a 25% rise in prices in the second-half.
Should you panic?
I'm not as bearish on lithium prices as Morgan Stanley after hearing from many of the largest lithium producers in the world.
The common theme that I have heard is that the major producers plan to bring on new supply slowly and carefully in order to not disturb the supply/demand balance. If this proves to be the case then I think lithium prices will remain favourable for the foreseeable future.
Time will tell what happens, but for now I'm holding onto my Galaxy shares.
