How the Lynas share price (ASX:LYC) sunk 90% last time this happened
Kerry Sun|April 22, 2021 10:39am|More on:LYC
TheLynas Rare Earths Ltd(ASX: LYC)share price has come underimmense selling pressureafter the company revealed that Chinese producers were planning to increase production.
Among them, Northern Rare Earth will be doubling production within three years. This accounts for some 60% of China’s total rare earth production.
This news sent the Lynas share price into free fall, shedding 13% in value in the last two trading sessions.
China has a near-global monopoly in rare earths production. This accounts for more than 55% of total global output. Between 2011 and 2017, fierce domestic competition and ignoring environmental protocols sent rare earth prices plummeting. Furthermore, placing Lynas on the brink of collapse.
While China’s planned increase in production is met with a different set of circumstances today, it might be worth taking a trip down memory lane.
The boom and bust for rare earth prices
Rare earth oxides (REO) were fetching for as much as US$200/kg at their peak in 2011. However, as soon as China began to purge the market with supply, much of which was produced illegally, prices began to crash lower and lower.
Lynas’ most recentquarterly updateobservesa steady improvement in REO prices. But the complete opposite was happening just a few years back. In its FY16 quarterly, REO prices went from A$17.2/kg in 1Q16 to as low as A$14.7/kg in 4Q16. The company was burning through cash and on the verge of collapse.
Between the boom and bust of rare earth prices, the Lynas share price went from as high as $26.70 in April 2011. Prior to falling as low as 30 cents in October 2015.
This could be why the Lynas share price is facing heavy selling pressure. Due to a significant amount of rare earths production is expected to hit the market in the medium term.
However, it is also important to acknowledge that the supply increase is met under a different set of circumstances given the global multi-decade commitment to decarbonisation and electrification of vehicles.
Lynas share price slumps for a third straight session
The Lynas share price dipped as much as 5.50% on open to $5.25. Its shares quickly bounced off lows and are currently trading 2.53% lower to $5.40.
Its shares are caught in a tug-of-war. Caught between the potential impact that China might have on rare earth prices and the clear long-term demand for rare earths and renewable technology.
Why is the Lynas (ASX:LYC) share price down 14% this week?
Kerry Sun|April 21, 2021 2:05pm|More on:LYC
TheLynas Rare Earths Ltd(ASX: LYC)share price continues to slide after what initially looked like a goodquarterly resulton Tuesday.
The Lynas share price has fallen almost 14% this week, today reaching a 2-month low of $5.41 at the time of writing, down 7.6%.
Didn’t the quarterly result read well?
Lynas’ quarterly results read well at face value.
Its rare earth oxide and NdPr (Neodymium and Praseodymium) had largely improved to 4,463 tonnes and 1,359 tonnes compared to the respective 3,410 tonnes and 1,367 tonnes produced in the second quarter of FY21 (2Q21).
Rare earth prices also continued to march higher in the quarter to A$35.5/kg compared to A$29.5/kg last quarter and A$19.8/kg a year ago.
The company observed that the “rare earths market appears to be recovering well, with both magnet and catalyst sectors experiencing robust demand during the quarter”.
As part of Lynas’ 2025 growth plan, its new Kalgoorlie rare earth progressing facility project continues to push forward with the approval for the start of limited preliminary construction. The company was pleased to hear Prime Minister Scott Morrison publicly state that this project is a “…gold standard example of the cooperation on critical supply chains between Australia and the US.”
Higher production, higher prices, a recovering industry and government recognition. So what exactly is going wrong?
What’s driving the Lynas share price lower?
Upon closer inspection, the update shed light on subdued sales due to the impact of theCOVID-19pandemic on trade, and recent shipment delays due to the Suez Canal blockage.
The company also observed that several Chinese rare earth producers are planning to increase production. Among them, the leading global rare earths supplier Northern Rare Earth, which plans to double production within 3 years.
Northern Rare Earth accounts for some 60% of China’s total rare earth production. The doubling of its output could very well weigh on prices in the medium to long term.
The market appears to have swept aside the company’s quarterly achievements and focused more on looming supply woes. Despite today’s fall, the Lynas share price is still up 29% year-to-date.
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