Lynas shares take a tumble as we commence trade this week.
The post Why the Lynas (ASX:LYC)share price is sliding 12% on Monday appeared first on The Motley Fool Australia. –
The Lynas Rare Earths Ltd (ASX: LYC) share price is slipping into the red as we commence trade this week.
The Lynas share price has been selling off since 15 September when it came off a high of $7.79 at tremendous speed.
Shares in the rare earths player are now changing hands at $6.61 each, which is a 12.33% drop from the market open on Monday.
There’s been no market-sensitive information for the company, so let’s investigate what’s up with Lynas’ shares today.
What in front of the Lynas share price lately?
Lynas’ core business area of rare earths’ mining and development is an elusive yet essential segment.
Funnily enough, rare earths metals aren’t actually that rare. But they are essential. They are used in a diverse range of applications, particularly in electrical components in everything from speakers to electric motors to medical instruments.
There are 17 of these metals and each is becoming more and more essential in the demand for electrical necessities.
What’s more, the Lynas share price can fluctuate from volatility in rare earths’ markets.
This is because Lynas, as an ASX-resource share that produces commodities, is considered a price taker. That means its share price can potentially benefit from surging demand in rare earths metals.
Looking at the price chart for Neodymium, a rare earth Lynas produces, over the last 6 months, we can see it has climbed around 34%. The Lynas share price has also climbed around 32% over the same period.
This surging demand in Neodymium is fuelled by a profile of technology advancements and more industries using these advancements. Additionally, the coronavirus is lifting our appetite for electronics in just about everything.
However, recent geopolitical tensions between the US and China appear to have spilled over to the broader ASX resources space, including the rare earths markets.
This is in addition to China placing restrictions on its domestic resource producers in 2021 to curb production rates.
This is important for Lynas. According to analysis from commodity experts Roskill, China controls around 55% of global rare earths’ production capacity and 85% of global refining output for rare earths elements.
The S&P/ASX 200 Resources Index (XJR) is down 4.91% today as well, extending its loss over the past 5 days to 8.7%. The same index is down almost 9% over the past month as well.
So it appears that broad weakness in the ASX resources sector, spurred on by geopolitical tensions and an unstable rare earths’ outlook, could be weighing on the Lynas share price today.
Lynas share price snapshot
The Lynas share price has gained 69% this year to date, extending its return to 167% over the past 12 months.
However, it has flatlined over the last month and is 2% in the red over the past week.
Despite this, Lynas shares have outpaced the S&P/ASX 200 Index (ASX: XJO)’s gain of around 25% over the past year.
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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.