It’s a mixed day in the stock market on Wednesday, Oct. 12, with early premarket gains fading after a mixed Producer Price Index (PPI) report. But that’s not what’s wreaking havoc on lithium stocks, which are down sharply on the day.
Albemarle (NYSE:ALB) is near session lows and down about 10% on the day. Sociedad Quimica y Minera de Chile (NYSE:SQM) is down 7.5%, while Livent Corporation (NYSE:LTHM) is off 5.5%.
Finally, there’s Lithium Americas Corp (NYSE:LAC), which is down 2.8% on Wednesday. The larger players — like Albemarle and Sociedad Quimica — are really taking it on the chin.
The culprit? A Morgan Stanley report, which cited “yellow flags” for lithium prices. As a result, the firm downgraded SQM stock.
What Does This Mean for Lithium Stocks?
Lithium stocks have a few things working against them right now.
First and most specifically, worries over lithium prices could be a big issue for the industry. “Analyst Javier Martinez de Olcoz Cerdan noted a significant fall in SQM lithium prices in China.” He noted that both volumes and prices fell in September, dropping 10% and 11% month over month, respectively.
Is it time to panic? Not exactly, as the analyst cites just a yellow flag instead of something worse. Still, the timing isn’t great. He ended by saying:
“SQM could be holding part of its capacity increase, to sustain spot prices in China, otherwise why would they sell less in a market paying USD 70k/tn, to increase volume in other markets paying USD 39k/tn in average, and in fact, the share of China in total sales has been sequentially falling from May peak.”
Other catalysts working against lithium stocks? A potential global recession is looming as well as a bear market in equities. That said, the stocks have bucked those fears thus far. As recently as last month, Albemarle and Livent hit new all-time highs. Sociedad Quimica y Minera came within 4 cents a share of doing so as well.
Lithium batteries are used in everything from electronics and tools to energy storage systems and electric vehicles. If demand softens in these areas due to the economic climate, lithium stocks could be at risk. The same takeaway applies if the stock market remains in a bear market. That said, if pricing remains strong, then perhaps lithium stocks can continue to buck these worries.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.