Orocobre (ASX:ORE) share price rebounds from broker downgrade

The Orocobre Limited (ASX: ORE) share price is fighting back after it got hit with a broker downgrade as Galaxy Resources Limited (ASX: GXY) surges

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Orocobre Limited (ASX: ORE) share price is fighting back after it got hit with a broker downgrade.

The Orocobre share price tumbled more than 3% in early trade but bounced to be up 0.7% at $5.59 at the time of writing.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) shed 0.3% of its value as mining, energy and property shares weighed.

Why JPMorgan downgraded the Orocobre share price

The positive sentiment towards all-things lithium can't be easily turned off even as JPMorgan cut its recommendation on the Orocobre share price to "neutral" from "overweight".

This isn't to say that the broker has a negative take on the mineral. If anything, it believes supply will quickly tighten as demand for electric vehicles revs up.

The issue is the rapid rise of the Orocobre share price, which surged by over 150% in the past year.

Hard to cool the lithium fever

But perhaps enthusiasm towards the Galaxy Resources Limited (ASX: GXY) share price today is lifting all boats in the lithium bay.

The Galaxy share price charged up 9.1% to a near three-year high of $3.26 during lunch time trade. Shares in the spodumene producer is running hot after management issued a positive update this morning.

Two drivers for the rocketing Galaxy share price

But this may not be the only news boosting the stock. JPMorgan has upgraded its price forecast for spodumene but left its estimates for lithium chemicals unchanged.

"We have increased spodumene prices a further 5-10% with reports of recent trades above US$600/t," said the broker.

This is good news for Galaxy but has no impact on the Orocobre share price as the latter produces lithium carbonate from brine from its joint-venture Olaroz lithium project in Argentina.

Differences in how lithium is mined

Spodumene occurs as crystals in hard rock and can be used to produce lithium carbonate or lithium hydroxide. The latter is becoming more highly prized by battery producers, reported newagemetals.com.

But regardless of where lithium comes from, most experts agree that global supply will struggle to keep up with expected demand for EVs. We could see shortfalls of the mineral as early as 2023.

This is the main reason why ASX lithium shares have been on a tear, although the speed of their ascend could cause concern.

Foolish takeaway

Few would think a bubble is forming but the risk is rising. Also, we shouldn't forget the saying in commodity markets – that nothing cures high prices like high prices.

It means that high spodumene and lithium carbonate prices will spur miners to ramp up production via brownfield or greenfield projects.

The undersupply issue may not last as long as some ASX investors believe.

Motley Fool contributor Brendon Lau owns shares of Galaxy Resources Limited and Orocobre Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A man sees some good news on his phone and gives a little cheer.
Share Gainers

Why 4DMedical, Clinuvel, Life360, and Silex shares are pushing higher today

These shares are having a good finish to the week. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why DroneShield, Hub24, Syrah, and Weebit Nano shares are sinking today

These shares are ending the week in the red. But why?

Read more »

Ecstatic woman looking at her phone outside with her fist pumped.
Share Market News

This small-cap ASX share could rise 60%

This small cap could be heading meaningfully higher according to Bell Potter.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Healthcare Shares

Up 2,075% in a year, why is the 4DMedical share price rocketing again on Friday?

Investors just sent 4DMedical shares surging another 20% on Friday. But why?

Read more »

Young successful engineer, with blueprints, notepad, and digital tablet, observing the project implementation on construction site and in mine.
Materials Shares

Is this ASX iron ore stock a better buy than Fortescue?

Bell Potter thinks this stock could rise 90%.

Read more »

Frustrated and shocked business woman reading bad news online from phone.
Share Market News

5 things to watch on the ASX 200 on Friday

It looks set to be a tough finish to the week for Aussie investors.

Read more »

person sitting at outdoor table looking at mobile phone and credit card.
Broker Notes

What is Bell Potter's latest outlook for Kogan shares?

Here's the updated guidance out of the broker.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

Ord Minnett says this ASX 200 stock can rise 40%

Big returns could be on offer with this top stock.

Read more »