Shares of lithium giant Albemarle (ALB -0.96%) skyrocketed this morning, surging 16.7% in early morning trading after an industry development triggered a buying frenzy in lithium stocks, which have seen significant value erosion in recent months. Albemarle stock was trading 10% higher as of 10:40 a.m. ET Wednesday.
Why lithium prices could rebound
Albemarle stock is down 40% this year, even after factoring in today's gains. Oversupply concerns amid a global slowdown in the demand for electric vehicles (EV) sent lithium prices tumbling in recent months, with prices now hovering around three-year lows. Industry experts expect lithium supply to jump by nearly 50% this year, driven primarily by China.
So, when a major lithium producer from China reportedly plans to cut lithium production, it is bound to revive investors' hopes. In its latest research report, UBS analyst Sky Han revealed that Contemporary Amperex Technology (CATL) has decided to suspend operations at its Jiangxi lithium mine. UBS said CATL decided to suspend production after a meeting on Sept. 10.
A Reuters report further confirmed the development. "Based on recent lithium carbonate market conditions, the company plans to make adjustments on lithium carbonate production in Yichun," CATL told Reuters. CATL is the world's manufacturer of EV batteries, and its lithium mine is among the largest in China.
Han estimates that CATL's move will cut China's monthly lithium carbonate production by 8%. That's huge and, if true, could prove to be an inflection point for the struggling lithium industry.
Today's news is just another reason to buy Albemarle stock
Albemarle was growing steadily until lithium prices started to fall last year. Plunging prices hit the company's profits, forcing it to initiate several actions to cut costs and preserve cash in recent quarters. Any rebound in lithium prices driven by a demand-supply rebalance should, therefore, hugely benefit Albemarle and help its top and bottom lines recover.
In any case, if you want to take advantage of the cyclical downturn in the lithium industry and buy some stocks, Albemarle tops the list, given its massive foothold in the industry and strong balance sheet.
