Bearish market conditions for lithium producers are setting tough times ahead for emerging companies like Pilbara Minerals Ltd [ASX:PLS]. A downgrade in concentrate production and further operational delays could spell trouble for PLS shares.
This morning Pilbara Minerals’ share price was volatile, opening at around 50 cents, before quickly dropping down 48 cents. It then bumped up to 49 cents at lunchtime today.
At time of writing, shares are trading at 50 cents. Over the last month we have seen its shares take a hit, falling around 27% since 5 June 2019.
There are signs that there’s appeal for short-sellers within the lithium sector. Pilbara minerals is the 12th most shorted stock on the Australian Stock Exchange, according to The Australian Financial Review.
Plagued by rising lithium supply and weakening demand
The rising supply of lithium combined with weak demand from China has analysts forecasting that the element could fall even lower.
Not a good sign for Pilbara’s value.
The Australian Financial Review suspects oversupply was not the only cause for the price decline:
‘This year was supposed to be the year a “wall” of new supply crushed lithium prices — but while prices have slumped, export data suggests supply growth has been modest and is not solely to blame.’
Last month PLS said slower than expected commissioning of battery chemical conversion plants in China was the reason the company made cuts to its Pilgangoora operations in WA.
Despite the decision to cut exports, Pilbara has held discussions with key offtake partners General Lithium and Ganfeng to provide relief on their initial agreements.
The company is also reducing sales at its Pilgangoora mine in reaction to reduced demand at multiple levels of the Chinese electric car supply chain.
Changes to Chinese subsidies on electric cars are thought to have decelerated the potential for use of these smart cars.
Pilbara Minerals’ 2019 share price outlook
While these bearish conditions are causing a bit of havoc for Pilbara Minerals and other lithium producers, Fastmarkets expects that lithium demand will catch up by mid next year, following the integration and adoption of electric cars.
Investors will have to be patient in the meantime.
More to come.
For Money Morning
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