December 20, 2018 / 8:18 AM / in 5 months

Orocobre price warning drags down lithium stocks

MELBOURNE (Reuters) - Shares in lithium producers worldwide tumbled on Thursday after Orocobre Ltd said prices for lithium carbonate had sunk more sharply than analysts had expected in the quarter, and warned it did not see a recovery in the short term.

An oversupply of lithium this year has nearly halved prices in China, halting an unprecedented run for the key component for batteries used in electric vehicles.

Orocobre, which is listed in Australia and mines lithium in northern Argentina, said it would receive an average of $10,800 per tonne on approximately 2,850 tonnes of lithium carbonate in the fourth quarter, a drop of over 25 percent from $14,699 a tonne in the prior quarter.

That pricing was much weaker than analysts had expected, and suggests the industry will face slimmer profits next year.

The news sent Orocobre’s shares tumbling by 13.6 percent and other lithium stocks followed them lower. Shares of Albemarle Corp - the world’s largest lithium producer - fell more than 5 percent. Chile’s SQM (SQM_pb.SN), the no.2 lithium miner, dropped 8 percent.

Shares in other Australian lithium miners Kidman Resources and Galaxy Resources fell 13 and 10 percent, respectively. Livent Corp, which like Orocobre operates in Argentina, saw its shares drop more than 11 percent.

“The pricing achieved recently has been affected by soft market conditions in China having a direct impact on shorter term contracts,” Orocobre Chief Executive Richard Seville said on a conference call.

“I’m reluctant to provide guidance on pricing at this point. We are in negotiations for next year’s contracts with our customers. I’d have to say it’s not feeling strong. We are not expecting a rebound in pricing at this point in time.”

The pricing of lithium, which is not traded on any major exchange, is often opaque. But data from Asian Metal indicates that prices of lithium carbonate in China have halved this year as supply has ramped up, bottoming at three-year lows of 66,000 yuan ($9,588) a tonne in October.

Lithium carbonate was last trading around 69,500 yuan a tonne on Thursday, according to the pricing and information provider.

But given China’s still strong electric vehicle sales, a recovery in prices for the specialty metal had been expected before the year-end.

Seville said that Orocobre’s customers outside of China had also come under pressure, given how much of their ultimate client base was in the Asian nation.

“Orocobre sent their product both into China and ex-China, so you thought they had a little bit of buffering from the Chinese spot price,” said one analyst, who declined to be named.

Reporting by Melanie Burton; Additional reporting by Ernest Scheyder in Houston and Dave Sherwood in Santiago; Editing by Tom Hogue and Rosalba O'Brien

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