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Orocobre share price hits 2-year low as lithium supply glut looms

The Orocobre Ltd (ASX: ORE) share price fell to a 2-year low of $2.64 per share recently as concerns regarding oversupply in the global lithium market continue to push the company’s share price lower.

Why has the Orocobre share price continued to slide?

The Orocobre share price closed 1.1% lower at $2.71 per share yesterday, as global lithium prices continue to slide lower on pricing disagreements and oversupply.

Orocobre is a pure-play lithium miner. Its share price reached as high as $7.20 per share in January 2018 as ASX lithium stocks peaked, a peak that included the likes of fellow lithium miner Galaxy Resources Ltd (ASX: GXY).

However, lithium prices have since fallen from a record high of $156.80 in January 2018 to $103.30 at present, a 3.4% drop since the start of this year.

Also sending investors heading for the door is continued commentary by major banks and asset managers including Morgan Stanley tipping oversupply in the lithium market going forward. 

While the Orocobre share price is down 14.5% so far this year, Galaxy’s shares have fallen an incredible 37% to just $1.31 per share at yesterday’s close – a far cry from its similarly lofty valuation of $4.24 per share reached in January 2018.

What’s the deal with lithium pricing?

Lithium is a key input in electric car batteries, a trend that investors have long hoped would see the likes of Orocobre and Galaxy share prices soar higher and capitalise on the market. Australia is well placed to capitalise on the lithium demand boom (should it eventuate), with the world’s largest lithium mine on our shores, mostly situated in outback Western Australia.

Adding to the lithium price slide has been the opaque nature of pricing used for contracts on the London Metals Exchange (LME) with concerns over the development of a benchmark price for the metal and whether it is accurate and necessary.

While concerns remain for lithium, other Aussie miners in resources sectors such as gold are enjoying record highs, with the share price of Saracen Mineral Holdings Ltd (ASX: SAR) climbing 29.9% higher so far this year to approach its 52-week high.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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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