The outlook for lithium is getting worse as the world’s largest producer of the battery making ingredient is forecasting a further drop in the price of the commodity over the next six months.
Chilean miner Sociedad Quimica y Minera (SQM) has started contract negotiations with customers and has told Fairfax Media Limited (ASX: FXJ) that the September quarter price is expected to fall by less than 10% compared to the previous quarter.
That would be comforting if not for the fact that Lithium is already in a bear market. The price of the mineral that’s used in the next-generation technologies like home battery storage, electric/autonomous vehicles and artificial intelligence has slumped around 24% since its recent peak in January this year.
A drop of 20% or more fits the technical definition of a bear market and it’s telling when a producer with a vested interest in high prices is the one giving the bad outlook.
Adding to the uncertainty is the divergent view on the outlook for the market over the medium to longer term.
It’s payday for short-sellers betting against our leading lithium miners with Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE) among the most shorted stocks on our market. Short sellers are those who borrow stock to sell on-market in the hope of buying it back at a lower price later.
The irony is that it’s these ASX miners that are responsible for the dismal outlook for the sector as SQM and other experts are pointing their finger at Australia.
The problem isn’t demand. Lithium powers the technologies of tomorrow and SQM is forecasting demand growth of around 20% a year. The issue is supply and it’s Australian-based miners that are flooding the market with the likes of Mineral Resources Limited (ASX: MIN) and Pilbara Minerals Ltd (ASX: PLS) adding to the surging supply outlook that is outpacing growth in demand.
But trying to forecast where the lithium market will be in a year or two is a mug’s game. Production issues, supply disruptions and the volatile global economy makes it difficult for anyone to give a prediction with confidence.
Some commodity analysts are predicting a price recovery in a few years, while others like Morgan Stanley predicted in February this year that the price of lithium will crash by 45% by 2021.
I am a bull on the mining sector, but lithium is one mineral I have no exposure to as the lithium market is far less transparent than others like iron ore or copper.
There’s also good opportunities outside of mining, according to the experts at the Motley Fool. They have uncovered a group of stocks that are well placed to outperform the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in FY19.
Find out what these stocks are by clicking on the free link below.
For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..
But knowing which blue chips to buy, and when, can be fraught with danger.
The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."
Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.
The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.
Click here to claim your free report.
Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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.