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Why the lithium miners are racing higher today

It has been a positive end to the week for the Australian share market and gains are being seen across almost all industries.

However, one industry is outperforming the rest today – the lithium miners.

Here is the state of play in the industry on Friday afternoon:

The Altura Mining Ltd (ASX: AJM) share price is up 6.5% to 32.5 cents.

The AVZ Minerals Ltd (ASX: AVZ) share price is 5.3% higher to 10 cents.

The Galaxy Resources Limited (ASX: GXY) share price has raced almost 4% higher to $3.12.

The Lithium Australia NL (ASX: LIT) share price has jumped almost 8% to 9.8 cents.

The Orocobre Limited (ASX: ORE) share price is up 3% to $5.42.

The Pilbara Minerals Ltd (ASX: PLS) share price has risen almost 3.5% to 93.5 cents.

Why are the lithium miners on the rise?

Today’s gain could be a delayed response to a note out of Goldman Sachs earlier this week.

That note, courtesy of the Financial Times, revealed that the broker has suggested that the selloff in lithium shares this year is “overdone”.

Goldman Sachs, which is one of the world’s biggest commodity traders, believes that concerns over the wave of supply of the battery making ingredient from new mines are unfounded.

This is partly down to the fact that it is harder to develop new lithium mines than most people realise. In addition to this, electric car sales growth means that demand for lithium is expected to rise fourfold by 2025 according to the broker.

All in all, the broker expects “lithium markets to remain sufficiently tight to handsomely reward incumbent producers.”

This opinion is contrary to that of lithium bear Morgan Stanley which has tipped an oversupply of the metal and a significant decline in prices in the coming years.

Should you invest?

I believe that Goldman Sachs is spot on with its assessment and that producers such as Galaxy, Orocobre, and Pilbara Minerals could be good (high-risk) long-term investments.

But it is worth remembering that if Morgan Stanley’s prediction proves accurate, then these lithium miners’ shares could come under a lot of selling pressure.

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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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