Why the Lynas share price is crashing today

Brendon Lau | August 5, 2019 | More on: APX BHP FMG LYC RIO WTC

The Lynas Corporation Ltd (ASX: LYC) share price has crashed to a more than two-month low this afternoon as the stock got swept up in the broad-based market sell-off.

The LYC share price tumbled 5.2% to $2.55 at the time of writing as the S&P/ASX 200(Index:^AXJO) (ASX:XJO) index shed 1.8% of its value with the mining heavy materials sector among the biggest losers.

The Fortescue Metals Group Limited (ASX: FMG) share price plunged 6.7% to $7.13, while the BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) share price gave up more than 3% each.

As bad as the losses were, it still couldn’t top the IT sector with high price-earnings (P/E) stocks like Appen Ltd (ASX: APX) and WiseTech Global Ltd (ASX: WTC) among the worst three performers on the ASX 200.

Buying or selling opportunity?

This is the sell-off we had to have! The market had run too hard and I think this pull back will prove to be a good opportunity to buy select stocks – and I think rare earths miner Lynas is one to put on your watchlist.

The fact that the selling is indiscriminate gives me more confidence in deploying some of my cash back into the market, although there probably isn’t a big rush as the selling pressure is unlikely to abate in the very short-term.

What’s more, there isn’t any new news to explain Lynas’ fall from grace today. Commodity prices are under pressure from worries about the global trade-war induced economic slowdown, and investors think this probably extends to rare earths.

Bright outlook

However, the US-China trade war is good for the outlook for rare earths, which are used in electric vehicles, military equipment and consumer electronics.

Slowing growth is likely to crimp demand for some of these products but the tension between the world’s two biggest economies will only heighten worries that China will cut off the supply of the minerals to the US and its allies.

This is why I find it hard to become too pessimistic about the outlook for Lynas, which is one of the largest suppliers of rare earths outside of China.

The key risk to the miner has also been removed this week with the Malaysian prime minister all but agreeing to renew Lynas’ operating license to run its processing plant in Kuantan in a media interview.

A formal decision by the Malaysian government isn’t expected till the middle of this month, but Malaysia is a country whose cabinet is unlikely to defy the prime minister.

There’s also unlikely to be any negative earnings surprises when the miner hands in its full year profit results given that it has released the June quarter production report last week.

I think companies with little risk of negative surprises and a promising outlook will outperform over the next six months – if not longer.

https://www.********.au/2019/08/05/why-the-lynas-share-price-is-crashing-today/