Albermarle (NYSE: ALB) stock is down 5% or so, the lithium spot price is down 2.5% or so. That lithium spot price is not a wholly accurate determinant of the ALB stock price but it sure is a reasonable guide to it. This is because of how mining works. Al miners are - well all with very, very, few exceptions - commodity producers. The economic definition of a commodity includes the idea that there are so many producers that no one of them has any procing power. They get to sell their production at whatever the market price is and that's that. A farmer and his wheat, the supermarket and baked beans, the lithium miner and their lithium - the market price is just what the sales price is going to be.
Therefore:
Spot China lithium price from Investing.com
And this:
Albemarle stock price from NASDAQ
There's an obvious connection between those two prices. The costs to Albemarle of mining lithium do not change as the market price of lithium does. Therefore changes in the lithium price feed directly through to the bottom line, to the profits, at Albemarle.
Now, this is not wholly true, as prices for a spodumene miner like ALB are normally capped and collared - their contracts to the processors will have minimum and maximum prices. We don't know what those are but they will apply in the short term and not in the long. Thus in the medium term profits might be unaffected by a strongly falling lithium price but in the long term they most assuredly will be.
We can also worry, as we have about the Albemarle bid for Liontown. To us there's a definite flavour of launching and pricing that bid at the top of the lithium market. But then we acknowledge that we're bears on that long term lithium price when many others in the market are not.
So, while there are details that make this not exactly and in detail true as a more general observation it is. The Albemarle stock price can be tracked, treated even, as a leveraged play on the China spot lithium price.
