Lithium Stocks Are Soaring. Why Albemarle, Others Are Hot.

A lot of lithium is refined from salt brines. Pipes pump brine from a pool at the Albemarle lithium mine in Chile. (Cristobal Olivares/Bloomberg)

Lithium stocks rose early Monday after Chinese battery maker Contemporary Amperex Technology Co. Ltd. halted production at one of its mines due to licensing issues.

Shares of Albemarle and Sociedad Quimica y Minera De Chile, or SQM, rose 7% and 8.7%, respectively, while the S&P 500 and Dow Jones Industrial Average dropped a out 0.3% and 0.5%, respectively. Shares of China’s Ganfeng Lithium rose 10% in overseas trading.

Coming into Monday trading, many lithium stocks were “up more than 25% over the past month on the elevated risk of supply cuts into key permitting renewal dates,” wrote Citi analyst Kate McCutcheon in a Sunday report. “While we don’t expect the removal of about 9,000 metric tons per month of [lithium] to result in a hard [supply] deficit, we expect the news would bolster sentiment in the short term.”

Lithium is a key component in electric vehicle batteries, and CATL is the world’s largest producer of EV batteries. Its lithium mine represents roughly 8% of the global supply. The pause could have a significant impact on prices.

“We estimate sentiment on supply disruption should drive [the] lithium price rally to be greater than [$11,000] per metric ton in the next couple of days,” wrote Citi analyst Jack Shang on Sunday. After that, he sees prices falling back to about $10,000 per metric ton.

Lithium prices have risen this year to $10,000 a metric ton from about $8,000. That’s still a far cry from peak levels. In late 2022, when EV demand was outstripping EV supply, lithium traded above $80,000 a metric ton. Albemarle stock was above $300 at the time. Shares closed last week at just above $75.

Higher commodity prices typically help shares of commodity producers, but trading around transitory commodity price changes can be difficult for investors. The recent lithium price rally hasn’t impacted Wall Street sentiment all that much. Only 30% of analysts covering Albemarle stock have Buy ratings, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Albemarle stock is about $77.

SQM, which also manufactures fertilizer and iodine, enjoys more Street support. The Buy-rating ratio and average price target for SQM stock are 57% and $47, respectively.

Coming into Monday trading, SQM stock was up 21% over the past three months, and up 16% year to date. Albemarle stock was up 30% over the past three months, and down 12% year to date.

Write to Al Root at allen.root@dowjones.com