Orocobre shares crushed on weak lithium prices, outlook

The Olaroz Lithium Facility is located in Jujuy Province in northern Argentina. (Image courtesy of Orocobre.)

Shares in Australian lithium miner Orocobre (ASX: ORE,TSX: ORL) dropped Thursday after it said that prices received for its output dropped in the half of its fiscal year ending in December, and noted it didn’t expect a significant improvement in the short term.

The Brisbane-based producer of lithium carbonate, used in the making of batteries that power electric vehicles (EVs), expects to obtain an average of $10,800 per tonne on about 2,850 tonnes of the product in the fourth quarter. That would be an 8% decline on the previous half and over 26% lower than the $14,699 per tonne the company received in the prior quarter.

Orocobre’s gloomy outlook worried investors and triggered the company shares to slump, closing 13.6% lower at A$3.37. It also dragged other lithium miners down — Galaxy Resources (ASX:GYX) fell 10.20% to A$2.23, Pilbara Minerals’ (ASX: PLS) stock price dropped 7.3% to 64 Australian cents, and Kidman Resources (ASX: KDR) closed has plunged 9.5% lower to $1.05.

Orocobre shares crushed on weak lithium prices, outlook

“The pricing achieved recently has been affected by soft market conditions in China, which had a direct impact on shorter term contracts,” Chief Executive Richard Seville said in an online update.

“I’m reluctant to provide guidance on pricing at this point [but] I’d have to say it’s not feeling strong. We are not expecting a rebound in pricing at this point in time,” Seville said.

Orocobre’s forecast are in line with Chile’s lithium miner SQM, which in August flagged a downward trend in prices caused partly by new supply ramping in Australia and an ever-rising number of projects expected to come online by 2020.

Expected strong lithium demand will not be able to offset a decline in prices experts say, even though they predict the need for the commodity from battery makers alone will jump 650% by 2027, while overall demand is forecast to rise more than threefold in the next nine years.

Orocobre shares crushed on weak lithium prices, outlook

Fastmarkets MB believes 90% of the price weakness this year has been down to the lithium supply response. In 2019, William Adams, Head of Research Base Metals & Battery Materials says, supply is expected once again to grow at a faster pace than demand. However, exponential growth from the EV sector and the lack of sufficient supply, will see prices spike again by 2025, he predicts.

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