The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) may be starting the week with a sharp decline, but one group of shares has made an even worse start.
Here is the state of play in the lithium miner industry at lunch:
- The Argosy Minerals Limited (ASX: AGY) share price has tumbled 7% to 32 cents.
- The Avz Minerals Ltd (ASX: AVZ) share price is off 4% to 30 cents.
- The Galaxy Resources Limited (ASX: GXY) share price is down 5% to $3.00.
- The Lepidico Ltd (ASX: LPD) share price has fallen 7% to 5.2 cents.
- The Lithium Australia NL (ASX: LIT) share price has dropped 5% to 18 cents.
- The Orocobre Limited (ASX: ORE) share price has fallen over 4.5% to $6.79.
- The Pilbara Minerals Ltd (ASX: PLS) share price is down 2.5% to 89 cents.
What happened?
As well as the market being in risk-off mode today, the lithium miners have come under pressure due to ongoing concerns that oversupply could hit the industry and put an end to the high prices that are currently being commanded by producers.
The majority of the lithium miners have been valued as though the high prices of today will stick around for the foreseeable future. So it is no surprise that concerns on pricing have led to a sell-off.
But the big question is whether or not it is justified. One expert that doesn't believe concerns around oversupply are justified is Global Lithium's Joe Lowry.
He told the News Limited press that fears that Sociedad Química y Minera de Chile's (SQM) ramp up in production would lead to a huge oversupply was just "bad analysis".
He believes that SQM will only modestly increase its production due partly to its new onerous royalty regime and instead will accelerate its pursuit of new projects outside Chile. This includes its joint venture with Australian lithium miner Kidman Resources.
However, that doesn't mean that Lowry is bullish on all lithium miners. He has warned against an investment in AVZ Minerals, believing that there's a strong possibility its Manono lithium project in the Democratic Republic of the Congo may never be built.
Should you buy the dip?
Whilst I am bullish on the lithium industry in the long-term and Galaxy Resources in particular, I don't think the volatility will be going away any time soon. This makes it one of the more high risk investment options out there and largely unsuitable for the average trader. In light of this, I would approach the industry with caution at this point.
