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Galaxy, Orocobre, & Pilbara Minerals shares crash lower on bleak lithium forecast

One of the worst performing areas of the market on Friday has been the lithium industry.

The majority of Australia’s lithium miners have fallen heavily following the release of the first quarter update by lithium giant Sociedad Química y Minera de Chile (SQM).

What was in SQM’s update?

SQM’s update revealed that it has continued to experience a decline in lithium prices during the first quarter.

It reported an average price of US$14,600 per ton during the quarter, down by around 8% from the previous quarter.

Unfortunately, things are not expected to improve over the remainder of the year. In fact, the miner expects new supply to lead to another sharp decline in prices.

It said: “New supply will have an impact on pricing this year, and our average price could fall an additional 20% reaching approximately US$11,000 to US$12,000 per metric ton during the second half of this year.”

If this proves to be the case then it is likely to weigh heavily on the margins of SQM and Australia’s lithium miners, hence why investors have been hitting the sell button in a hurry on Friday.

Here is the state of play in the lithium industry this afternoon:

The Galaxy Resources Limited (ASX: GXY) share price is down 5%

The Orocobre Limited (ASX: ORE) share price has fallen 4%

The Pilbara Minerals Ltd (ASX: PLS) share price has dropped 5%

And finally, the Wesfarmers Ltd (ASX: WES) share price has fallen 0.5%. The conglomerate is in the process of acquiring lithium miner Kidman Resources Ltd (ASX: KDR) for $1.90 cash per share, which equates to a total consideration of $776 million.

Its shareholders will no doubt be hopeful that lithium prices improve by the time Kidman Resources’ operations at the Mt Holland Lithium Project are fully operational.

Now might be a good time to avoid lithium and check out this hot small cap stock.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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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