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Why lithium miners Galaxy, Orocobre, & Pilbara Minerals are crashing lower

Although the majority of the Australian share market is trading lower on Monday, one area of the market has fallen harder than most.

In afternoon trade the lithium miners are amongst the worst performers on the local market with three of the four major local producers sinking to 52-week lows or worse.

Here’s the state of play in the industry this afternoon:

The Altura Mining Ltd (ASX: AJM) share price is down 4.5% to 8.6 cents.

The Galaxy Resources Limited (ASX: GXY) share price has dropped 5% to $1.14.

The Orocobre Limited (ASX: ORE) share price has sunk 6% lower to $2.21.

The Pilbara Minerals Ltd (ASX: PLS) share price has fallen 8.5% to 35.2 cents.

Why are the lithium miners crashing lower?

Whilst some of this decline can be attributed to the market selloff, I suspect the majority of it is due to comments out of lithium giant SQM last week.

According to the Financial Times, SQM has forecast for the continued oversupply in the market for the battery making material. As a result, it expects this to weigh on prices for the remainder of the year.

The company’s CEO, Ricardo Ramos, believes an increase in supply will push lithium sales prices down to US$10,000 a tonne during the third quarter, from an average first quarter price of US$14,600 a tonne.

Adding insult to injury for Australia’s lithium miners, is news that the world’s second largest lithium producer has its eyes on growing its market share again. Over the last few years SQM’s share has dwindled from 27% to 17% according to the AFR.

But SQM intends to put a stop to that and advised that it wouldn’t let falling prices and profits prevent it from lifting its production materially over the next 18 months.

I suspect that this could put a lot of pressure on some of the smaller lithium miners such as Altura and Pilbara Minerals and may spark fears over the viability of their operations.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. 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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