Why beaten-up Albemarle stocks are rising today

The lithium giant’s shares Albemarle (WHITE 10.67%) soared this morning, rising 16.7% in early morning trade after an industry development sparked a buying frenzy in lithium stocks, which have seen significant value erosion in recent months. Albemarle shares were trading up 10% as of 10:40 a.m. ET Wednesday.

Why lithium prices could bounce back

Albemarle shares are down 40% this year, even after factoring in today’s earnings. Concerns about oversupply amid slowing global demand for electric vehicles (EVs) have pushed lithium prices lower in recent months, with prices now hovering around three-year lows. Industry experts expect lithium supply to grow by nearly 50% this year, driven mainly by China.

So when a major Chinese lithium producer plans to cut lithium production, it’s 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 September 10.

A Reuters report further confirmed the development. “Based on recent lithium carbonate market conditions, the company plans to make adjustments to lithium carbonate production in Yichun,” CATL told Reuters. CATL is the world’s EV battery manufacturer, and its lithium mine is among the largest in China.

Han estimates that CATL’s move will reduce China’s monthly lithium carbonate production by 8%. That’s huge and, if true, could prove to be a turning point for the struggling lithium industry.

Today’s news is just another reason to buy Albemarle stock

Albemarle rose steadily until lithium prices began to decline last year. Falling prices have hit the company’s profits, forcing it to take more actions to cut costs and preserve cash in recent quarters. Any recovery in lithium prices driven by a rebalancing of supply and demand should therefore greatly benefit Albemarle and help its top and bottom lines recover.

In any case, if you’re looking to take advantage of the lithium industry’s cyclical downturn and buy some stock, Albemarle is at the top of the list given its massive industry position and solid balance sheet.