The commodity market moves to the beat of its own drum, usually reflecting specific supply and demand dynamics. A number of commodities have seen either a supply shock or rising demand in recent years. Those tend to be good for prices.
Sometimes, however, commodities fall out of favor. For instance, declining demand for EVs has led to a big drop in lithium prices. Lithium is a key component for rechargeable battery technologies, and EVs are a big chunk of that demand.
However, the market is now stabilizing. Lithium producers like
Albemarle (ALB) have scaled back new production from mines planned to come online. The reduced supplies to market are helping lithium prices stabilize.
That could be a boon for Albemarle shares, which have dropped 67% from their 2022 peak.
With lithium prices up 15% so far this year, the commodity is faring better than the stock market. Yet Albemarle shares are still inexpensive at less than 9 times earnings.
Action to take: Commodity rebounds take time to play out and can lead to big returns. That’s good news for investors today. At current prices, Albemarle also pays a 1.4% dividend.
For traders, the September $130 calls, last trading for about $9.00, could see mid-to-high double-digit returns on a further rally higher for the lithium miner.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.