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.
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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.
