The Orocobre Limited (ASX: ORE) share price will be on watch today after the release of its latest quarterly update.
During the third quarter Orocobre achieved production of 3,075 tonnes at its Olaroz Lithium Facility. This was a 10% increase on the prior corresponding period and the best March quarter on record at Olaroz thanks to pond preparation and a strategy of managing brine quality.
This brought its year to date production to 9,150 tonnes and puts the company in a position to achieve its full year production guidance of ~12,470 tonnes, which will be flat year on year.
Quarterly sales revenue came in at US$33.4 million, which was a 4% increase on the second quarter but a decrease of 19% on the prior corresponding period due to weaker lithium prices.
During the quarter the company's realised average price achieved was US$9,451/tonne on a free on board basis. This was an 11% quarter on quarter decline and a massive 30% decline on the prior corresponding period.
Management blamed this on both direct and indirect impacts of China's prolonged market softness. This includes growing competition from increased Chinese exports responding to subdued domestic demand.
This ultimately led to a gross cash margin per tonne of US$5,258, down a massive 43% on the prior corresponding period.
Market update.
As well as its own results, the company provided an update on the state of the lithium market. Unfortunately, things don't look great right now.
"Following the conclusion of China's New Year holiday period, independent Chinese conversion plants demonstrated little appetite to build inventory despite widespread announcements of lower spodumene prices in 2019. Similarly, Chinese lithium chemical customers were resistant to establishing long-term agreements instead preferring to negotiate on a shipment-byshipment basis, as communicated by key suppliers during the most recent earnings calls. As a result, Chinese imports continued to decline as suppliers became increasingly focused on key long-term growth markets with less volatility including South Korea, Japan and Europe."
Should you invest?
I think this quarterly result demonstrates why it would be best to stay clear of lithium miners such as Orocobre, Galaxy Resources Limited (ASX: GXY), and Pilbara Minerals Ltd (ASX: PLS) for the time being.
Until lithium prices reach an inflection point, I suspect that their shares will remain under pressure.
