Why is the Liontown share price crashing 16%?

Liontown shares have been hammered on Wednesday…

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The Liontown Resources Limited (ASX: LTR) share price has started the month deep in the red.

In afternoon trade, the lithium developer’s shares are down 16% to $1.19.

Why is the Liontown share price crashing lower?

Investors have been selling down the Liontown share price on Wednesday amid broad weakness in the lithium industry.

This appears to have been driven largely by a bearish note out of Goldman Sachs in relation to lithium prices.

That note reveals that its analysts believe that lithium prices have peaked and will be falling materially in the coming years.

However, it is worth noting that this isn’t exactly a new view from Goldman. As we covered here around a month ago, its commodities team have been warning that lithium prices will peak this year and then start to retreat.

It is also worth noting that not all analysts agree with this view. Some believe that demand will continue to outstrip supply and keep prices elevated for longer.

The recent BMX auction from Pilbara Mineral Ltd (ASX: PLS) appears to back up this bullish view. Once again, the lithium giant announced a record bidding price for its spodumene concentrate at last month’s auction.

Are the bulls or the bears correct?

The fact of the matter is that nobody knows what lithium prices will do next. There is an abundance of lithium out there in the world, which is why BHP Group Ltd (ASX: BHP) won’t touch the stuff, but how soon it can get to market is impossible to predict.

That’s what makes lithium shares such a high risk option for investors and is likely to mean the Liontown share price remains quite volatile for the foreseeable future.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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