Lithium and tantalum producer Pilbara Minerals Ltd [ASX:PLS] has reversed the gains it made yesterday shedding 2.91% or 1.5 cents to trade at $0.50.
Shares in the lithium miner have been depressed over the past 12 months, with the share price down more than 52% since July last year.
What happened to Pilbara’s share price?
Pilbara shares lifted 5% yesterday after the company announced that it had inked a deal with Chinese automaker Great Wall for early delivery of 20,000 tonnes of product a year over six years starting from next month.
The miner also advised that shipped tonnes for the June quarter had come in at 43,214 tonnes, representing the higher end of previously revised guidance range of 23,000–45,000 tonnes.
Pilbara had been forced to revise down its guidance last month after its customers delayed shipments because of a slower than expected ramp-up in capacity of their chemical conversion facilities in China.
Pilbara yesterday gave September quarter sales guidance of 35,000–48,000 tonnes, saying it expected sales to recover to 65,000–80,000 tonnes by the December quarter based on its latest discussions with customers.
However, the good news has been short lived with the share price again threatening to dip below 50 cents.
The price of lithium has been in a strong downwards trend since hitting its peak at the beginning of 2018, dropping a 4.85% since the beginning of 2019. Overnight lithium prices continued downwards, losing a further 0.67%.
Chilean Company SQM — soon to be Wesfarmer’s business partner — issued a sobering warning back in May predicting the lithium price could fall a further 25% before the year is over.
SQM chief executive Ricardo Ramos said the forecast was not a stab in the dark but was informed by sales negotiations for the latter months of 2019.
What’s next for Pilbara’s lithium operations then?
While falling lithium prices are certainly affecting miners, automakers will likely relish the opportunity to produce cheaper batteries for electric vehicles.
Great Wall has been pushing hard to expand its presence in the lithium-ion supply chain. This has often resulted in PLS having to supply lithium earlier and if greater volumes than anticipated by prior agreements. And is probably what has been propping up their sales guidance.
The company also cited solid progress on plans for a formal joint venture agreement with South Korean steel giant POSCO for a downstream chemical conversion facility in the country.
A total of 6,020 tonnes has been shipped from the Pilgangoora Project to POSCO to date, with 2,993 tonnes shipped during the June 2019 quarter.
In other news, the London Metal Exchange (LME)’s plan to set a reference price for the white metal hasn’t appeased everyone. Lithium currently has no benchmark price, leaving producers to negotiate prices with buyers under confidential deals.
Though industry investors and analysts are likely to welcome such a move, some lithium producers are not impressed by the plan, believing the metal is not a true commodity requiring a benchmark.
Regardless, any move to benchmark the price of lithium is likely to send shockwaves through the share price of lithium producers.
For Money Morning
PS: Check out this exclusive investor report: ‘Rare Earth Boom 2.0: An In-Depth Look at the Commodities of the Future’. Click here to learn more.