Historic buying opportunity or head for the hills? It is a question being asked about the lithium sector where share prices in the last month alone are down 20-30 per cent.
Among the leading lithium stocks, Pilbara Minerals (PLS) has fallen 24%, Kidman (KDR) 30%, Galaxy (GXY) 20%, Orocobre (ORE) 30% and Altura (AJM) 20%. Even Mineral Resources (MIN) with its substantial non-lithium business is off by 10%.
The damage is more severe when current share prices are compared with the highs touched last year.
The shorthand explanation offered up for the sell-off is that the rise-and-rise of the Western Australian hard-rock (spodumene) industry has tipped the market into over-supply, causing price weakness in the Chinese spot market for lithium carbonate.
The explanation is flawed on a number of counts, not the least of which is the spodumene price is still in a $US850-$US950 a tonne range because it is plugged into the more price-stable lithium hydroxide market, the increasingly-preferred precursor for battery makers.
From that it can be readily appreciated that the lithium market is opaque as they come. Using single spot price estimates of where pricing is for a product that comes with a multitude of specifications and uses just ain’t right.
It was a subject tackled by Pilbara CEO Ken Brinsden on the sidelines of last week’s Diggers & Dealers conference.
Brinsden said pure and simple that the thesis that the lithium market is over supplied was plain wrong.
He reckons two key factors explain the weakness in Chinese spot prices for lithium carbonate (again, not spodumene or the later stage lithium hydroxide)
First up, there was China’s quite-right decision to shift incentives for battery adoption as part of its efforts to clean up its skies from old technology battery chemistries, to nickel-rich cathode batteries with higher energy densities.
The shift does not directly affect lithium usage but it has forced a retooling of a big chunk of the Chinese battery industry which still has a way to run.
Perhaps more telling then is part two of Brinsden’s explanation for the current weakness in lithium carbonate prices in China.
It relates to efforts in China to develop a brine-based lithium industry. “Some of the investments are bearing fruit and it’s led to the dumping of sub-grade material on to the market. It’s had the effect of putting ore tonnes in the market in a relatively short period,” Brinsden said.
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