Why the lithium miners are sinking lower today

The market may be heading lower again today, but one area that is falling more than most is the lithium miner industry.

Almost all of Australia’s leading lithium miners are sinking notably lower in afternoon trade. Here’s the current state of play:

  • The Altura Mining Ltd (ASX: AJM) share price is down 1.5% to 37 cents.
  • The Galaxy Resources Limited (ASX: GXY) share price is off almost 2.5% to $2.95.
  • The Kidman Resources Ltd (ASX: KDR) share price has tumbled 6% to $2.26.
  • The Mineral Resources Limited (ASX: MIN) share price is down 2.2% to $18.06.
  • The Orocobre Limited (ASX: ORE) share price has fallen 4.5% to $5.73.
  • The Pilbara Minerals Ltd (ASX: PLS) share price is down 1.7% to 86.5 cents.
  • The Tawana Resources N.L. (ASX: TAW) share price has dropped 3.5% to 41 cents.

Why are the lithium miners sinking?

Today’s declines appear to be related to news out of Chile’s Sociedad Quimica y Minera de Chile (SQM) overnight.

The lithium giant released its first-quarter results on Thursday. While SQM reported improved lithium prices during the quarter, investors appear to have overlooked this and focused on SQM’s plan to ramp up production considerably to take advantage of the increasing demand and high prices.

SQM intends to lift production at its Atacama salt flats operation from 48,000 tonnes to 180,000 tonnes by early 2021. As a comparison, total global supply last year was an estimated 215,000 tonnes.

Investors may believe that this will put pressure on prices in the medium term and ultimately weigh on the performances of Australia’s lithium miners.

But I wouldn’t panic just yet. According to the press release, SQM’s management believes “that with demand growing close to 20% this year and next year, the market will be able to absorb this additional supply.” Before adding that “we reiterate that we are constantly reviewing market conditions; our strategy is to have the installed capacity to react to the market demand.”

I remain confident that companies like SQM will be very careful when adding new supply to the market and won’t do so if it impacts prices too greatly.

So the recent selloff of lithium miners could arguably be a buying opportunity. Though, it is important to remember that they are amongst the most volatile and high risk shares on the market. This could make them largely unsuitable for most investors.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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