Two of the best-known ASX lithium stocks in Orocobre Limited (ASX: ORE) and Galaxy Resources Limited (ASX: GXY) have seen their share prices fall 7.6% and 38.8%, respectively, so far this year – but could they fall even lower?
Why could ASX lithium stocks fall in 2019?
According to an article from Bloomberg, a build-up of lithium mines from the likes of Orocobre and Galaxy has contributed to lithium supply significant outstripping lithium demand.
As mentioned in the article, lithium miners have been building up operations in anticipation of a "booming future when electric cars go mainstream."
However, lithium prices have tumbled so far this year as a burst of new production and a slowdown in demand growth, primarily out of China, have combined to create a less than ideal pricing market.
According to the article, between mid-2015 and mid-2018, prices for lithium almost tripled as the world's fleet of electric vehicles hit the 5 million mark, and the auto industry panicked about demand–supply imbalances.
This need for new supply subsequently sparked a flurry of lithium mine openings in Australia, with six new mines coming online since 2017 as companies raced to gain from evolving technology and conducive market.
However, as we've seen this year, the electric vehicle boom is yet to fully arrive and this has sent lithium prices crashing lower over the past 12 to 18 months.
Bloomberg said that sales growth is slowing in China, the top market for the soft metal, and the drive to fill the battery supply chain has since cooled.
The result of this has been a 30% price plunge for lithium that's spurring concern over where the bottom may lie.
What does this all mean for the Orocobre and Galaxy Resources share prices?
Lithium pure-play Orocobre is highly exposed to the lithium pricing market, while the Galaxy share price has ridden the lithium pricing crash to be 38.8% lower since just the start of this year.
Australia remains the leading lithium producer in the world and according to the article, lithium output is expected to rise about 23% over the next 2 years.
However, while our country is rich in the metal, the world's second largest producer Chile has said that its seeking to double the country's current output within the next 4 years.
Orocobre also recently reported a number of other pricing hurdles including delayed expansion from converters in China, aggressive project timelines and tightening credit.
Meanwhile, Pilbara Minerals Ltd (ASX: PLS) said it planned to temporarily slow its production levels to adjust for the changing demand environment.
All this could be a signalling a red flag to speculative investors who bought up big on the lithium miners, with no sign of a bottoming out in the market in the short-term.
