After climbing almost 3% higher in early trade following the release of its quarterly update, the Orocobre Limited (ASX: ORE) share price has given back a good portion of its gains in late morning trade.
At the time of writing the lithium miner's shares are up 0.5% to $3.27.
What was in today's update?
Towards the end of last year the company provided a trading update which revealed its expectations for the first half.
At that point it advised that it expected lithium carbonate production of 6,000 tonnes, sales of 5,000 tonnes, and a half year average price of US$12,470 per tonne. The latter was a significant drop on the average price it commanded in the September quarter and was blamed on soft market conditions.
Today's update reveals that in the second quarter the company produced 3,782 tonnes of lithium carbonate, bringing its first half production to 6,075 tonnes. Whereas second quarter sales came in at 3,019 tonnes, which brought it half year sales to 5,253 tonnes.
Both these figures were ahead of the guidance management provided in December.
However, the average price received for its lithium carbonate was weaker than it guided to. In the second quarter the realised average price achieved was US$10,587 per tonne tonne on a free on board basis.
This was down a massive 28% from the first quarter average of US$14,699 per tonne and meant its average price for the first half was approximately US$12,139 per tonne. This is around 2.6% lower than its guidance.
What's next for Orocobre?
While Orocobre's operational performance was fantastic in the first half, it was let down by weakness in prices. Within its update the company explained what happened.
"…concerns grew during the December quarter as to the impact of China's economic and market conditions. As the quarter progressed it became apparent that China's market softness was beginning to impact the greater lithium market, highlighted by a pronounced shift in trade flows. Steady growth in Chinese lithium product exports in the earlier months of CY18 accelerated throughout the December quarter as large Chinese converters targeted the markets of Japan and South Korea (China & Chile customs data). Japan and South Korea also experienced an increased volume of imports from Chile while the volume exported from Chile to China decreased. Increased competition in the seaborne market from well-established Chinese suppliers began to pressure carbonate prices in the December quarter. Meanwhile, China's spot carbonate prices remained subdued, finding a floor during the quarter but failing to deliver the anticipated seasonal lift."
The good news for shareholders of Orocobre and rivals Galaxy Resources Limited (ASX: GXY) Kidman Resources Ltd (ASX: KDR), and Pilbara Minerals Ltd (ASX: PLS) is that management remains confident that this is a short term correction following a three to four year period of high growth.
In light of this, in maintains its long-term demand forecasts in the range of 18% to 20% CAGR between 2018 and 2025.
I would suggest investors wait for signs that prices are improving before considering an investment.
