Galaxy Resources Limited (ASX: GXY) a lithium production company has tumbled 25.6% from its all time high of $4.46 to $3.32, following an agreement on 16 January 2018 between Chilean development agency Corfo and Sociedad Quimica y Minera (SQM).
The agreement will allow SQM to produce up to 180,00 metric tons of lithium annually, which would more than triple the company's output. Demand for lithium ion battery applications has accelerated primarily due to growth in electric vehicle consumption across the globe. However, if lithium supply increases, market forces will dictate a decline in the commodity price, impacting profit margins.
Galaxy Resources' share price had seen an increase of 175% over the last 6 months prior to the announcement, and I believe investors saw this as a good excuse to cash in their winnings, considering the company's December 2017 quarter results showed its EBITDA grew 58% to $34.2 million, while realising a 10% increase in lithium concentrate production.
