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The rollercoaster story of lithium over the last five years goes something like this: Demand went through the roof in late 2021 and throughout 2022, as the EV and renewables boom took off in full force. Automakers were scaling production and stockpiling lithium, all while supply was heavily constrained from years of underinvestment and logistical bottlenecks.

Albemarle Corp. (ALB)

This perfect storm sent prices up more than 8x, reaching all-time highs north of $80,000 per metric ton, and Albemarle was minting more cash than they knew what to do with. But the high prices quickly brought a wave of new supply. Small-scale producers in China, many fully subsidized, flooded the market and created a massive supply glut. Lithium prices came crashing back down, and Albemarle’s stock fell with them — down more than 80% to where it sits today.

The good news for Albemarle is that they are the largest and lowest-cost producer worldwide. This has allowed them to cut operating costs and capex and pretty much sit on their hands and wait for cyclically low lithium prices to recover. Meanwhile, the longer prices stay in the pain zone, the more low-quality, marginal producers will get taken out on a stretcher.

To put this into context, ALB management estimates that about 40% of current global lithium capacity is AT OR BELOW BREAKEVEN, with only roughly 1/3 of that supply having come offline so far. This should continue to support ALB and lithium prices from the supply side, with analysts expecting the supply glut to shrink and largely be gone by 2026.

A few weeks ago, Ken Hoffman, an expert in lithium and battery materials formerly at McKinsey, laid out his case for a lithium recovery. He sees the bottom in 2025, a gradual recovery starting in 2026, and prices reaching $15,000 to $20,000 per metric ton by year end.

Recommended Action: Buy ALB.

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