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Orocobre (ASX:ORE) share price dives despite a recovery in lithium markets

Lithium mineral deposits
Image source: Getty Images

The Orocobre Limited (ASX: ORE) share price has dived lower today despite a fair half-year (HY21) results announcement.

At the time of writing, the Orocobre share price is trading down 5.12% at $4.82 after diving to an 8% low mid-morning.

Here are some factors beyond its results that could be pushing its share price lower. 

What’s driving the Orocobre share price? 

The broader ASX 200 and US market is facing significant selling pressure on rising bond yields. The S&P/ASX 200 Index (ASX: XJO) is down 1.90% at the time of writing, while US indices all fell between 1.75% to 3.50% overnight. 

To add further insult to injury, the Global X Lithium & Battery Tech ETF (NYSEARCA: LIT) – comprising companies around the world involved in the lithium cycle, from mining and refining the metal through to battery production – fell by more than 7% last night. 

The lithium ETF’s top three holdings, which make up approximately 25% of its net assets, include top lithium producers Albemarle Corporation and Gangfeng Lithium, and the notorious Tesla Inc (NASDAQ: TSLA)

A slump in the lithium ETF overnight has carried over into ASX lithium shares, with Pilbara Minerals Ltd (ASX: PLS), Galaxy Resources Limited (ASX: GXY) and Orocobre all diving lower today. 

Half-year results summary 

For the half-year ended 31 December 2020, Orocobre delivered 7,738 tonnes of lithium carbonate, up 21% on the prior corresponding period, with revenue of US$27.0 million.

The company highlighted its focus on cost reduction and improved operational efficiency for the half, resulting in a 19% fall in cash cost of sales to US$3,777/tonne.  

That said, the company was still selling lithium at a loss, with an average sales price of US$3,492/tonne. The negative margin of US$285/tonne for HY21 resulted in earnings before interest, taxes, depreciation, and amortisation (EBITDA) loss of US$6.3 million. 

On a more positive note, the company anticipates that 2H21 sales will increase by more than 50% to approximately US$5,500/tonne with improving market conditions.  

The company maintains a sound capital position with total group cash of US$262.3 million.

Lithium markets rebounding strongly 

Orocobre focused the latter half of its results presentation on the recent recovery of the lithium market.

The company cited that Chinese spot lithium carbonate prices were up 50% between September 2020 and December 2020. This was driven by a faster than expected decrease in lithium chemical inventories and a sharp increase in electric vehicle demand. 

Orocobre believes that the strong desire for decreased carbon emissions will accelerate the move to electric vehicles and other green technologies.  The company said it was well-placed to grow its existing production capacity to leverage the improving lithium market. 

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Kerry Sun owns shares of Galaxy Resources Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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